This is not a useful update but rather the same thing told by chemcrux in response to individual emails. Not sure what the underlying issue is and how does that compared to prior instances. Appreciate if anyone has any insights please share hereâŚ
This is my latest investment and I find it quite bewildering when trying to understand the rationale of the last few posts here.
I really wonder what is the new information in the last few days about the company / sector based on which we can rationally make an entry / exit decision?
If just a stock going down 15-20% in a few days is considered new information to be acted upon, then whatâs the point of all this business analysis on the forum?
- Have similar plant shutdowns happened before? Yes
- Have there been similar length or longer shutdowns before? Yes even longer as of date (2 months in Aug-Sep 2017)
- Has the management been able to deliver good business performance in the past despite these shutdowns? Yes
Now unless thereâs any new government policy announcement wrt pollution control / discharge / waste management, what has really changed about the business now? Nothing in my view.
Are we expecting Tata group levels of corporate governance from a 50 crore turnover company where management has already demonstrated superb execution capability through strong business growth, clear future road map, maintaining debt free balance sheet, very good profitability metrics and return ratios?
If we canât live with some uncertainties of micro cap investing which should improve as the company gains size and scale, then donât think we can live to reap the really big gains.
The biggest risk I see on this one is actually succession planning. Both the promoters are almost 65 years old, and the average life expectancy for Indian men is 69 years. You might laugh or think of it as a mere statistic, well reality came to bite on one of my other investments (MAS Financial) where one out of the 2 promoters suddenly passed away this month.
But even the promoter age is not new information. So really, what has changed! 
Many things have. For instance, I have. I have become better at picking companies (or so I would like to think). At time X, I picked chemcrux. At time X+t I am able to find better companies with lower levels of uncertainties and better business prospects.
Purely speaking from the company changes standpoint, the managementâs refusal to talk about what the notice is about is definitely a downer for me. That would be the simplest way for them to clear the air with the owners of their company about what is going on. The risks always existed. Itâs not about the price movement. When pf companies go down, I buy more of them, as long as I believe the probability of risks playing out is low.
The other information I found out recently, is that one of the high complexity chemicals that they made (lasamide, which I have posted about recently on this thread) is also made by DMCC. Really, they are far behind on the value addition curve compared to many peers. I would still own it despite all that if the management was a bit more open about their plans, about their workings, or even about what is wrong right now with the plant.
I think I might have the reason for management not sharing details about closure of factory. I know some X who runs a chemical company of his own in Maharashtra. X knows the pollution control board officers to be still corrupt to the present day. They come in and even if X has complied with every little detail if they are not paid a small sum they will always find a way to create some trouble for him. Thats how the world works unfortunately in these industrial areas in Maharashtra which go by the name MIDCs. This management has a track record of letting its shareholders know about every other details except this one. And I suspect their silence might have something to do with my above comments. Take any industry, if government compliance is involved, corruption is going to affect businesses. Who even knew about a green energy firm in Gujarat before changes in central power? Just look at their balance sheet now, loaded with debt.
Well, what made me more nervous is the repeated PCB closure notices in short span of time. I am worried on the time it is taking to obtain PCB revocation. Though I would like to believe the managementâs execution capabilities, however lack of clear picture as to what was the non-compliance and what their plans are to avoid such repeat issues particularly from PCB (given they had history of PCB notices) worries me.
Also, we have been hearing their capacity expansion plans since quite long time and EC approval too is taking longer than expected.
Any time lost is = loss in production, revenues, burning cash and loss of customers. It is a SME stock and volatility would be higher and the markets react wildly for both positive / negative news. After all, we all investors are here to make money and not to see erosion of capital.
I would love to hear more from the management on what preventive steps are being taken, instead of a simple letter to exchange yesterday.
Note: This is my personal opinion and I may be biased.
@kpc , I may be wrong, somehow your comment entirely doesnât add up in Chemcrux case. I am assuming Chemcrux management does not pay anything to officers, but then the company took only about 10 days to obtain PCB revocation to start production in the previous closure.
I am not saying explicitly that it is the case but it can be one of the common possibilities regarding pollution control board. There is no shortage of news regarding it. And not all officers are the same. But go to the industrial area of your town and talk to any owners. You will find trouble in so many compliance related things. When situations like these arise, managements cannot just communicate it publicly with shareholders. They have only two options really in such cases. Comply with the demand like everyone around them or donât comply and suffer. Again, I am not implying anything, it maybe upto you as an investor to decide since the facts are not known.
Any new updates in this company? Anybody tracking it closely?
Disc: not invested
Unfortunately no new update. The company has been very active in responding to investors. But they are not sharing any relevant information on the factory closure.
Actually there was an update (in some sense):
The way I see it is following:
- They have done everything they can to get revocation of the GPCB order done including in person follow up but we know how deliberately slow government functions can be, if and when they want to be.
- There is a little bit progress on the EC for capex.
- They want to create a new r&d center.
For me personally I donât have much doubt they would get ec. For me biggest ? Over this amazing story is how they manage to operate the business at near 100% capacity given that they are in ankleshwar and ankleshwarâs history of pollution.
Disc: was invested, not invested, tracking
Well the update for the point 1 is same (nothing new). I got the same update of compliance to my email just 2 weeks after the shutdown. What i am struggling to understand as to why it is taking so long ? Is it some gross violation of norms which we are not aware of? Its been over 2 months now and H2 is virtually wash out except for a couple of months production. I am sure Chemcrux will be in the GPCB and SEACâs radar given repeated GPCB closure orders (3 times in the last 5 years?)
Disc: Invested and Exited
Finally what everyone had been waiting for the revocation order has been received and plant has resumed operations since yesterday.
Revocation Order Of GPCB For Resumption Of Production
I got this stock through a screener alert. Checked and understood the below
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Excellent financials for a company at around 100Cr range, very negligible debt, good amount of cash in the BS, Dividend player, books are clean, excess cash invested in liquid or overnight funds, regular updates in website, replying to minor shareholders mails (most of the cases). These traits are very rare for a Small company like this. Highlly educated management with relevant educational degree.
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On the other side, below are the major concers,
a) Existing plant seems very old and expansion happens in same factory are connected to existing plant. Mostly it will be Indian standards and Not a EU/US standards, EU/US standards which are better in pollution control. This will be a frequent issue with pollution control. But i will discount earnings for 2 months and check if valuation makes sense to invest rather to skip the stock.
b) Approval for plant expansion might come, may be delayed but pollution control board issue might exist which affects the valuation
c) Girish and Sanjay are 60+ and there is no second line. Big risk according to me
d) Girish and Sanjay seems to be less aggressive and highly conservative attitude, they will do well but we cant expect a long term contious capacity expansion or a quick growth to capture the market if demand is available.
e) May be this company will be purchased by some other company and promoters will come out because promoters not developing second line.
Pls reply if my assumptions are wrong
New capex may take time because EC board has asked the company to submit under B1 category instead of B2 category. Below is a extract for diff between B1 and B2 categories.
The projects categorized as B1 require EIA report for appraisal and also have to undergo public consultation process. The projects categorized as âB2â are to be appraised based on the application accompanied with pre-feasibility report and other relevant documents.
Below is the status of the expansion plant status as per EC website, the file number is not fetching from EC link but fetching only from ToR link.
Can anybody help understand what is the meaning of this status
Got the below slide on Benzoic acid market size
Request to share the source for this info.
Companyâs latest disclosure on expansion (31 March) mentions the project under B2 category has been accepted.
âThe Company has applied for Environment Clearance under B2 category for their Expansion project. The same has been accepted by the SEAC and await presentation date for same.â
Please go through the message number 99 in this thread and you will find the details
- In RHP, you have mentioned that your company is a process driven company.
- This means that you can manufacture multiple chemicals from a single plant
- In my opinion, this is the reason that you have robust financial strength in the form of ROCE>25%
- This is the specific competitive advantage as compared to other players
- Is my understanding correct?
@sahil_vi @saurabhricha
Need your help here. Also why does competitors cannot copy this process?
Yes, you are correct on all fronts.
Seems like Lasamide is a high margin product apart from custom synthesis that they do.
It is not that they donât have competitors, in the thread you would find that other big and smaller unlisted players are also producing similar products.
I am no longer invested in this company. To me, the risks that I mentioned in the first post still remains. Until that is resolved, I would not want to go down the SME path. Once they are addressed, me might get multiple entry points as it is still a very small company.