Excel Industries : Experience Certanity

Stock Opportunities Not-so-Hidden Gems
1

Introduction: The Company is engaged in manufacturing of Chemicals, Pharma intermediates and Environmental products. Chemicals comprising of Industrial and Specialty chemicals and Pesticides Intermediates. Environmental products comprising of Soil Enricher, Bio-Pesticides and other Bio-products. The Company is also engaged in manufacturing activity on behalf of third parties.

Company is having 70 years of experience in specialty chemicals field. Management wants to widen the product portfolio to include a range of Agrochemical Intermediates, Pharmaceutical Intermediates,Polymer Input Materials and, Specialty and Performance Chemicals.

Company manufacturing units located at ROHA, Lote(Chemical Operations) and Ahmadabad (Environment Biotech and API operations).

Promoter Background:
A.C.Shroff is the Chairman and Managing Director of the company. He is currently a Co-chairman of CII – Agri Biotech Committee and member of FICCI – Environment Committee and FICCI – Chemical Committee. He is also a member of Research Council of National Institute for Interdisciplinary Science and Technology (NIIST), Thiruvananthapuram. He was recently conferred with the Life Time Achievement Award for the year 2012 by Indian Chemical Council (ICC), Mumbai.

Speciality Chemical Division
This Chemical division product portfolio covers phosphorous derivatives Chlorpyriphos, Minig chemicals, several Agrochemical intermediates,and Specialty chemicals such as PEEB and RELD etc. Their products will be used in industries such as Agricultural Chemicals, Lubricant Oil Additives, Mineral
Beneficiation additives, Dyes and Intermediates, Polymer manufacturing and processing and Pharmaceuticals. The end user industries consuming these intermediates have been growing steadily and confirming the uptick in sales.
Currently more than 50% revenues contribution is happening from Agrochemicals segment.

Company had lot of competition from China imports and yet it is able to report better earnings quarter on quarter and year on year. Company dependence on Yellow Phosphorous from China was erratic but developed alternate sources to stay competitive in agrochemical and Phosphonates markets, shows management capability on their business.

Decline trend in Prices of Petrochemical inputs, Ethanol and Acetic Acid and solvents will add profitability to the company.

Environment and Biotech Division

Excel Environment and Biotech division is focused on converting organic waste to energy. The segment covers from Organic Waste in household to Municipalities. In fact Ahmadabad Municipal Organic Waste Conversion (OWC) conversion is done by Excel Industries since 2000.

More than 20 processing plants established in India for centralized waste treatment with municipal solid waste processing range from 100-500 tons per day. Similarly more than 500 decentralized Organic Waste Converter (OWC) units established in India, Bangladesh and Myanmar.

Products:
Excel OWC (Organic Waste Convertor) is an easy to use Decentralized Waste Management System to turn large amounts of organic waste such as kitchen waste, garden waste, food processing waste etc. into compost. The system is designed to eliminate odor and also to remove the problem of irritants such as flies and rats.

The Excel OWC is a bio-mechanical Composting System which consists of the OWC machine, Curing System and a number of optional accessories for specific waste challenges. Targeted users are big apartments to medium societies.

Excel OWC Project : when organic waste output is on a large scale i.e. greater than 2 tons per day then we need a system designed to handle bigger volumes. Excel’s Large Scale OWC Systems are tailor made solutions to waste challenge at large scales and successfully deployed across several parts of the country.

Excel Bioneer: Feed in your waste into Bioneer and extract compost in just 24 hours. Bioneer’s efficient conversion and ease of use makes it possible for millions to make the environmentally and socially responsible choice of composting.

Pioneering the Waste Management Life-cycle, Excel introduced 2 products from in-house research i.e Sanitreat and Bioculum.

Sanitreat is a herbal and mineral mixture that is a non toxic and environmentally safe way to sanitization. It is highly effective over both segregated and desegregated organic waste. Sanitreat is available in 5 Kg and 25 kg packs. The shelf life of the product is 18 months from manufacture when stored in a cool and dry place.

Bioculum is a mixture of micro organism cultures that accelerate the aerobic composting of bio degradable organic waste. It also treats the waste and makes it free from pathogens, foul smells and weed seeds. Bioculum is a key input in the OWC process and consists of cultures of naturally occurring bacteria, fungi and actinomycitis along with enzymes. It is free from any toxic or hazardous components. It preserves the vital nutrients and organic matter in the waste.

Excel Pharmaceuticals (Excel Pharma Division) located at Lote(cGMP compliant) involves in APIs and Intermediates development such as fexofenadine hcl, Febuxostat.

Fexofenadine hcl used to treat allergic symptoms of seasonal allergic rhinitis (sneezing, runny nose, itchy or watery eyes), and urticaria (hives).

Febuxostat is used to treat chronic gout and hyperuricemia.

Under Veterinary API division, though it is at nascent stage, product portfolio includes Clorsulon, Butaphosphan, Oxyclozanide, Ractopamine, HomidiumBromide Sodium, Closantel Sodium dehydrate.

In the Polymer Inputs business, Excel developed a range of property modifiers and flame retardants. The process of approval of these products is underway with potential overseas clients in USA, Europe and Japan.

EXFLAR(Flame Retardants), EXHALS(Range of light stabilizers), EXCLAR(Clarifiers for polypropylene), DMBPC (This molecule is used as anti-scratch agent for polycarbonate), THPE(A trifunctional (B3)
monomer for demanding applications in the polymer industry), Specialty Monomers with Wide Applications: Some of these polymers finds applications in adhesives and coatings.

Subsidiaries Info: Kamaljyot Investment Limited and Excel Bio Resources are subsidiaries of the company registering a net profit of 44 lakhs and 6 lakhs consecutively for the financial year 2014.

Bullet Points:

  • Company current operations mainly in Chemical Business and Environment Biotech division. In next few years we can expect Veterinary APIs, Human APIs and Polymer inputs divisions to contribute top line significantly. The FDA license for the Pharma plant has now been received in early 2015 and this will enable the Company to enter into the wide open area of Active Pharmaceutical Ingredients. Various product approvals from large Pharma customers are being actively pursued as management claims.

  • Currently GOVT stalled mining activities across major parts of the country, any change can lead to create additional demand for mining chemicals.

  • The biocides demand saw a good jump thanks to the Company’s efforts in developing a new application in the preservation of wood and MDF. Company Environment Biotech division turned profit in the current quarter for the first time.

  •       Company always spending nearly 1% of sales (4.79 cr in 2014)   spent    on R & D activities, historically as well. The strong    Research   &    Development base in the Company will enable it to   develop advanced       intermediates for the newly launched    Herbicides and Fungicides.

  • The Company has also taken steps to develop new business in the area of Electronic Chemicals which will find application in Solar Photovoltaic Industry and in Display devices.

  • The OWC Division was successful in installing a top of the model OWC machine at Pune with a treatment capacity of 2 Metric Ton per day in a one shift operation. Projects of similar
    capacity were also set up at two different locations allotted by Panjim Municipal Corporation. Project for complete treatment of the vegetable waste generated at six different Agricultural
    Produce Marketing Boards (APMBs) in the state of Uttarakhand.

Negatives:

  1. Currently 50% dependence on Agro Chemical sector, as everyone aware which depends heavily on rain god mercy. OWC segment and Future pharma segment can change scenario likely to get re-rating.

  2. Any jump in crude prices will slightly hit the bottom-line.

  3. Key Raw material Yellow Prosperous price volatility.

  4. Previously company faced stiff competition from China on Agrochemicals in India and
    other euro countries. But recent stringent implementations of Anti dumping rules on China companies in Euro as well as in India coupled with closure of chemical factories not meeting the environment laws is benefiting the company.

Conclusion: Currently share price trading @340 levels commanding a PE of 9 against industry PE of 24. Considering future growth verticals on API and trustworthiness of promoters this should be part of core portfolio for everyone as I feel.

Disclosure: Purchased at 2 levels 192rs and 315rs levels.

9 Likes
2

Good to see the thread. The potential that lies for this company is in waste treatment and APIs. Though the revenue contribution from waste treatment business( as per the 1st qtry result) is small but if they scale up well, then can be a good story to hold onto. May be some members here can put some points here and help to dissect the story :smile:

Disc:- Invested

3

Excellent Analysis. Just one question, is Excel Industries and crop care related entities held by the same set of promoters? i note that both companies derive their major revenue streams from agro chemical products. Wondering why the promoter has two companies to engage in same line of business and whether the related party / transfer pricing rules are met? Please correct me if am wrong. Excel industries trade at a PE 9.5 whilst Excel crop care at 16.8. Is this difference, supports the invest case?

disclosure: Not invested but has bought agro chemical products of excel crop care / industries. I notice that either of the companies own plantations in Idukki and Tamil Nadu.

4

Chaitu even iam tracking this I have a query
Did you see there cash flow that is some what worrying the last three years It is 15 cr 32 cr and 14 cr any idea about fy 15 cash flow because presently it is quoting at PCF of 30 on Fy 14 cash flow
Secondly the Bioneer is in very nascent stage
Third is there any further chance for equity dilution like the one they did recently.

5

Just few days back only I though How could Excel industries is missed in Valuepickr forum.
Very good analysis by @Chaitu_1614
I have been in this scrip from 170 level. Looking to add at right price points.
Few positives in my view

  1. Company is paying dividends from last 10 years.
  2. Operating cash flow is positive from last 8 years.
  3. Environment and Biotech division which has lot of scope has declared profits for first time.
  4. Asset turnover ratio is improving from 1.97 to 3.35 continuously for every year from last 10 years
  5. Companies debt is in the range of 50cr to 100cr since last 10 years, Interest coverage ratio has been improved from 1.4 in 2005 to 5.35 in 2015

Disc: Invested at 170. Looking to increase holding

6

The AR is out. While the tone of the management is bullish in API segment ( They have mentioned that they have become a leader in one of the APIs) I could not find the same bullishness in speciality chemical and waste treatment segment. The tone is overly cautious in both of these. But was glad to see that PMO has recommended it’s products for use in Jammu and Kashmir flood. Also one intresting thing to note is that the company sounds as if the unorganised sector in waste treatment is the only biggest threat to this segment.
May be some senior members can throw some light on this.

Disc- invested

1 Like
7

I just gone through it. They mentioned that Waste management segment is highly dependent on government policies. They can’t do much improvements without government help.
Only thing bothering is they didn’t mentioned about equity dilution ( Share capital increased to 595.28lacs from 545.28lacs). Why they need to dilute equity if company got good profits and they have also given 7rs dividend (4 rs yet to approve) which is huge compared to last years dividend of 3.75rs. These dividend works out to 8.33cr without tax. Some one please clarify

8

Good to see a thread on Excel Industries. Have been going over the numbers for this co over the last 1-2 days. Just started with the research at my end.

Significant number of warrants were issued to promoter group company at issue price of 69/- on 24/09/2015 (face value 5 bucks, premium 64 bucks) - shouldn’t this be a negative?

Gagan

9

Bad Sep results, company seems to suffer due to lower sales affecting operating leverage.

However one positive, RM to sales ratio is same and the affect has been from fixed costs only which has affected margins. Lower sales could be due to lower agrochemicals demand in the last quarter, hopefully should improve in the next quarter results.

Today’s drop seems to be a good opportunity to buy.

Discl: Invested at CMP

1 Like
10

Hi All, I have been holding Excel since August 2014 around 200 levels. I didn’t sell or add. The last results have been mediocre. Can someone tell me if the intrinsic value still holds despite the one bad quarter and dilution of equity? Is this a good price to accumulate for a 5 year term?

11

If you are thinking long term better to talk about your concerns than price. What are you hesitant upon key risks etc?

12

Equity dilution was a shock and we don’t know the reason why or if they will continue dilute equity in future as well. Being dependent on a seasonal Agro business is another risk factor. I do see a lot of scope in terms of environmental solutions and waste treatment. Biotech, API and solar/display divisions can be scaled up and contribute significantly in the future.

As I already hold this stock @200 levels (in smaller quantities), I am looking at a good technical entry point for adding significantly to my present holdings. Just wanted to check if I have missed any pitfalls. Yes, I am in long term, but profits are always a function of price. Though I feel CMP is acceptable for the value, I would like the general consensus and build some conviction in the process.

13

Price of equity dilution which happened last year was at par to the market price the time warrants were first announced in 2014. Management thought to infuse equity at given price at a time when market was undervaluing its stock. I wont see that as a big negative. Had they dont it at a price significantly lower than the market price would have surely put a question mark on promoter’s integrity.

But as you can see they are regularly paying dividends and growing every year is a big positive and shows management’s friendly attitude towards minority investors.

14

I have been holding Excel industries since 1 and half years. All my 100% gain is eroded and came to neutral point. Stock is beaten due to one bad quarter and of course it may continue due to bad monsoon. But at this valuation of 6.7PE and 4% divided yield its not at all a sell. I got decent tax free dividend yield on my investment. I will wait for good monsoon year to exit if I feel stock price is reasonably over valued. Excel is in good business of Environmental technology which has lot of scope.

15

Excel Industries Ltd. incorporated in 1941 with manufacturing plant at Maharashtra and Gujarat. Excel Industries is engaged in manufacturing of Agrochemical intermediates, phosphates, specialty chemicals, Polymer inputs, Environment & Biotech, Veterinary APIs, biocides and pharma products. Company using alliance manufacturing concept by which company become partner with customers and develop products for them. Company create synergies between customers’ product and applications expertise and company’s process development and manufacturing capabilities to drive solutions for the polymer industry.Excel Industries Ltd._Blog.pdf (188.2 KB)

Not invested…

1 Like
16

If I recall it correctly, huge quantities of warrants were converted at price of Rs. 64 or so when it was trading at around 400 or so. I checked with CS back then and got the standard excuse. If one doesn’t see any promoters integrity issues in this then well…

Issue of warrants at rock bottom prices for no apparent reasons and converting them at such rock bottom prices when stock is trading way higher and diluting equity big time with no concern is a standard tool employed by many promoters and there is no way we can do anything as minority shareholders…

IMHO, one should check about the pending warrants before buying in and see it as possible dilution risk going forward…

Regards,
Aksh

1 Like
17

Promoters announced warrants with price appropriately determined as per SEBI formula and paid 25% amount upfront. They converted warrants as per declared schedule at declared price. You mean to say in view of price being much above the conversion price at the time of conversion they should have declined the conversion? What if prices were much below conversion price at the time of conversion? Again it would have been a issue if they would have declined. Take for example case of Nandan Denim. They have announced warrants to FII at 200 Rs per share. Now if at the time of conversion share price is Rs 1000 you will say promoters cheated you? Of course you should see pending warrants and that information is public. Warrants are meant for that kind of arrangement - It is wrong to blame the party who is holding warrant just because share prices went up at the time of conversion.

18

Sorry for the lengthy post but you see, there was no better way …:slight_smile:

First and foremost, there is no reason to believe that if something is done as per regulation it’s all right. No regulation is foolproof and there are always loopholes. Many a times regulators come up with decisions which are disastrous in the larger scheme of things if one analyses the consequences properly. You say, everything is all right because it’s as per regulation, well let me say that even with all the right intentions, regulator won’t protect us as It simply can’t in all the cases. So IMHO it’s really not wise to rely on any regulator for our investment decisions with our hard earned money especially when we have almost zero legal rights as minority shareholders if we consider the feasibility of such so called legal rights. I can go on and on writing about this but may be some other time… in a nutshell, the point that I’m trying to make here is, there are things which are legal and there are things which are ethical. something may be legal but still unethical.

As a minority shareholders, you and I will never get to participate in such deals. As I said in my previous posts, such warrants are issued to promoters at rock bottom prices with no apparent business reasons and not the other way around so there is, most of the times, no questions of converting warrants at much below CMP. I can give many examples like Excel, Control Print etc and I would encourage you to throw few examples wherein such a conversion happened at much below CMP and compare and contrast for the benefits of the community. You have given examples of Nandan but there is a difference when warrants are issued at high prices and to the third unrelated party as is the case here and when they are issued at rock bottom prices to promoters without any solid business reasons as is the case with Excel. Were there no better transparent ways of Capital infusion and price discovery? Well…

If one doesn’t see any conflict of interest as a minority shareholder with that of Promoters when they issue warrants to themselves at rock bottom prices when they are calling the shots being an insider knowing fully well the worth and direction of their business then well…what can I say?

Some savvy value investors, I know, actually buys into such scripts aligning their interests with that of promoters when such warrants are issued at rock bottom prices as a signal of the good times ahead and sells it at much higher prices few years later pocketing mutlibaggers.

I hope it clears the air and if it doesn’t I rest my case. :slight_smile:

Regards,
Aksh

Disc: No Investment

2 Likes
19

I had been holding it from 150 levels in 2014 till December 2015. The way promoter issued warrants to themselves at 60+ Rs irked me. An ethical promoter will see how to increase the shareholder’s wealth. Also, Excel Industries is related to Excel Crop Care, Transpek … If they keep issuing the warrants to generate the working capital EPS keeps on getting diluted and will wait for ever to get a good returns.

1 Like
20

Hi,
@nerolu_praveen and @cool_aksh and @sourav. I have been invested in excel since 180s along the same time some of you did. Of course equity dilution is painful to minority shareholders. But I don’t think there are many business houses in India who don’t practice this at our expense. I know many examples. There are even many business houses whose promoters who trade in their own shares. I guess that makes them even worst. Good thing about excel promoters is that they have not sold a single share. That gives confidence to me. Just think they could have easily sold their shares when share was around 400. But they did not and they are holding onto every single share. My point of contention is don’t judge a company by a single action. The business prospects are really good. They are doing some innovative stuff and if they keep it up who knows it may be a pharma company in the making. Hell if I was a promoter of the company I would have also used the price opportunity to issue warrants to myself. According to me the business has a lot of potential, the promoters are honest enough for my liking, they have already proved themselves. Just that the inherent nature of business makes us pray to the rain gods to do their magic which is frankly not in promoters hands.