Rakesh, these were the internal projections with which they were working. Plz read the last 3 lines from the same page where they mention that these projections are now subject to revision. They have also mentioned that even Q3 performance will be subdued.
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I read the presentation and added in chat gpt to extract anything if I missed.
Guidance will change based on China dumping. I do not see much reason of 20 percent UC since 2 days. But market might be taking long bet on Fairchem based on PE it is available and business. Unless China pauses producing citing environmental issue or no export to US like situation. I am not seeing much reason.
It is just the market behavior there is no need to dig and try to find reason for every upside if there is no announcement publicly available.
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Hello @dark_hunter , after this qtr poor result and management commentary on uncertaine environment arround business. But their is growth in volume of asian paint number. So Whatâs your current view on this company ?
I am just dumping my thoughts here, itâs not organised at all
TLDR; this is a mean reversion play
First let me lay out the negatives or the things I didnât like/ having concern about the company,
CFO is retiring, although he is 63, still he seems to be quite knowledgeable in their company process overall, he can able to answer the question about the chemistry behind their products etc
The new CFO is more of a traditional finance guy, so how does this transition would pan out, we have to wait and watch
In general, I like the way company answers the investors questions, except this time at the end of the concall, one of the investors has asked about the nature of raw material pressure, he scrutinized them , although the answers are not bad, but still personally it felt more lethargic and could have been clear
Neutral things:
The company is not losing market share from Chinese dumping, although it clearly visible that they donât have any pricing power
Although there is new entrants in paint sector , ideally their volumes should have increased given asian paints also had a decent quarter
But my read here is that birla opus is ourcing it from unorganised players at lower cost , and those said unorganised players are competing for the raw materials from the refineries thus inturn it puts margin pressure on fairchem, although I feel this should be transient in nature but i could be wrong here
Positives:
Margins may be at their lowest
They have capacity in place for ramping up, any increase in volume, utilisation should flow to bottom line
Tariff easing between US and India , should help them to exports sooner in the coming quarters
Regulatory approvals should be coming in next FY year
Animal feed business should rampup although itâs not a margin accretive business
Company is available at 1.5 to 2x sales , both volumes and margin should increase , although I have no idea , when that would be
Optionalities:
Company has been taking about a new product/alternate raw material for sometime, my hunch is it could aid them well
Birla opus might start source from them too in future, just like Asian paints
Personal Note:
I had known that I am entering into a company when itâs facing downturn, although I expect that the recover should be little bit faster, however the tariff situation compunded at the time when they scaled up their capacity(fixed cost)
So it might even take another year to even show recovery, or it may prolong too( due to some other adverse factor, since company has no control over their price and no visible moat),
And somehow I can take the punishment (weirdly) of 35 percent drawdown even after averaging it
It is not a huge position, but I ll slowly rampup month by month
Disclaimer: Invested
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The biggest concern with Fairchem is that the core business with dimer acid is a pure commodity and they are facing pricing pressure with low cost Chinese dumping. Without ADD, there is no hope for better margins. Fairchem is the only dimer acid producer in India so there isnât anyone else asking govt for ADD so chances of it coming in are slim. Why this matters is â their downstream higher margin product is isostearic acid. This is facing delays with approvals so operating deleverage in play affecting their margins again. The issue here is even once approvals are in place, for them to scale up isostearic acid production means an equivalent scale up in dimer acid production as it is a forward product. Now, they will need to sell the additional dimer acid produced and compete with low cost Chinese dumping so scaling up higher margin isostearic acid will result in scaling up lower margin dimer acid meaning end margins are purely dictated by huge scale. So, unless they come up with another product or an alternate method of making isostearic acid, they will face headwinds like any commodity player. And this is reflecting in the valuation (P/S 1.5-2).
I think the dimer acid â isostearic acid scale up limitation is a key bottleneck. I unfortunately found this from the Q4FY25 concall, much after my entry.
Disc: Invested. 2% size.
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When is the record date for buy back?
Failed to understand rational for doing buyback in current environment when business is struggling and company is totally dependent of GOI for import duty.
I guess this is just a gesture to control falling stock price and nothing else. Happy to listen any different opinion
My way to look at it is the struggling part of the business throws cashflows which they donât have a better way to reinvest so they are returning it back via buyback.
Fairchem needs to come up with optionalities that are not dependent on dimer acid to grow the business.
Cashflow from operation was negative last year and dimer is actually EBIDTA negative due to high custom duty on oil. Buyback seems an attempt to shoreup moral however until US deal is not done and tarrif issues are resolved it will remain under pressure.
Last concall also highlighted that they dont have edge in sourcing material.combined with no pricing power of end product, its at the mercy of market cycle.
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