Q2 F5,results are bad, infact, the pain is gonna be there for next year too, until the 3000Ton Isostearic acid comes and contributing the top line, there wont be much of surprise on the upside.
Due to Governmet increasing the import duty for unforseeable future until then the raw material prices are to be elevated, in fact we can expect the margin worse than this too in the coming quarters of this financial year.
Postives:
So the business is totally bad??, Certainly NO, Infact its quite opposite of that, Isometric (High value product - though not certain about this to be high margin business) used in cosmetics too, Like Fine organics.
I liked the management a lot, the promoter is quite transparent , I think they are doing correct things
- Backward integration for key raw material
- Looking for low cost to stay competitive (Setting up solar panels for electricity requirement)
- Getting into adjacencies where they have expertise - which are more value added
For Example: It seems Isometric components can be extracted from dimer acid, if we discount the e current slowdown which is transient in nature, though it may even take 3-6 quarters to even come back to current level of margin and profitability they are expanding their TAM and getting into value accretive adjacencies
They seems to be not interested in products which are not long term beneficial for them, ex: tocopherol, since this product market has already 2-3 players, but the demand is very low , they are not getting into this one, only if they receive specific order than only they are supplying (Cutting off the weeds)
on a side note
One thing is apparent, that paint industry demand is quite low , this is seen across the vendor of that industry, the competition may or may not be playing a bigger , however the data suggest the economic slowdown is real, will be recovered in the second half, mostly fourth quarter onwards
So when asian paint sneezes lot of the players gets cold too anyway I got side tracked
All in all I don’t see any drawbacks specific to the company, the management is competent, the stock may get beaten down much further too in the coming months.
But the future remains bright, since we don’t have clear idea or even predict when does the gov will lift the import duty and demand revival in paints sector, we can’t time the entry, however I believe this stock should at least yield 2-3x in next 3 years from current level, though next 1.5 years it may even beaten down further since the PE is not so cheap. But I m quite optimistic about this company future, if things falls in places , can hold this company up to another 5 years too since the isometric ramp will start to happen after second year and its sticky product (export market), only draw back may be opportunity cost, but its fine
Disclaimer: Invested (Currently in loss, Feeling the drawdown - will accumulate further on the dips over this Financial year)