Finding Companies with Big capex plans

[Capsule91]

Hi everyone, it is increasingly becoming difficult to find good companies at reasonable valuations and those that are reasonably valued or undervalued both in numbers and compared to intrinsic values or in relative individual perception have some sentiment dampness in the form of high leveraged balance sheet, pledged holdings , low promoter holdings, high rm costs severely compressing margins and innumerable other factors …

So one of the Forward looking parameters i want to research on is Capacity expansion in the background of high demand growth in the market sector where the companies work…

I request all the members of Valuepicker family to enrich each other with ideas in companies who have a significant capex planned in near future or already under process…

Please follow the format of presentation as the following…

1.Company name…
2.Amount or %addition to present capacity…
3.Nature of capex- brown/green field &industry segment…
4.Source of fund(debt, internal accruals, qip)…
5.Incase of funding from debt, present debt to equity ratio…
6.incase of qip, promoter holding before or after qip with %dilution…
7.Timline for capex to come online where ever possible as per management guidance…
8.Outlook on demand growth in the industry segment in which capex is being done
**

Please provide with the latest updated information where ever possible, when in doubt or needs further verification , please mention citation needed…
Please do not discuss about any individual stock in details expect the introductory questions, which otherwise can be discussed in respective company threads in valuepicker…

Hoping the thread to be very useful for mutual discovery…
Thanking you, i will start the thread with my contribution…

DISCLAIMER
Market capitalization and valuation metrics should not be considered while selecting companies for this thread…
This thread does not and should not be intended for any stock recommendation and followers of this thread are requested to follow individual research method for evaluating investment choices if inspired from this thread…

[Capsule91]

The following companies are in my watchlist or investments…

1. AksharChem
   
   
   
   (source q3 investor ppt)

Cpc green has both brownfield and green field components, Break up capacity not available (citation needed)

Source of fund- Total fund needed-175cr
Qip-69.04cr raised, net usable 66.45cr (net of cost of issue)
Rest from debt + internal accrual (debt portion not yet official or guided by management, citation needed)
promoter holding - 70.33% (before qip) 62.7%(after qip and current), no pledged shares

The entire capex plan is going to start generating revenue in fy19…

Industry outlook…

Source…q3 inv ppt

2.Pokarna…

130% addition to the present Quartz capacity…

Source annual report 2017 pg 30

For this a land acquisition was required as this is a greenfield project…
As per the lastest february inv ppt the land acquisition is complete…
Find the details here…

Source q3 inv ppt
The said debt is going to be foreign currency loans with interest of 5-6% as guided by management…
debt to equity ratio…1.94 (after capex debt)

18 months left to capex come online and typically takes 3years ballpark to attain full capacity utilization but will depend on the orderbook…

Quartz industry outlook-Demand in US to grow at 20-25% cagr for many years, as per q3 concall
Only exporter from india with Breton Quartz technology…
Export target -US (almost all of the export goes there, presently panning to diversify in europe , australia, east africa and india(through partnership with IKEA in india only))

[PE_Ratio]

Aksh Optifibre:
Entering into a new vertical: Production of Ophthalmic Lens.
Capex detail:
Status – Complete. Trial run also complete. Commercial production to start from early March 2018. (Source: Q3 press release notes)
Details – They’ve set up a plant in Kahrani, Rajasthan, with an initial production capacity of 25 million pairs of lens per annum. Based on the market response, they have plans to scale it up to 70 million pairs of lens per annum (they have already developed the required infrastructure for that too).
Indian Ophthalmic market requires 7 lacs lens per day. That’s 255 million pair of lens per annum. There is no other organized player in India in this field. Currently importing from China. Company has plans to provide competitive price to wholesalers & retailers. (Source AR 2017)

Since this is a completely new vertical and it’s high margin business, we can expect topline to grow and bottomline to grow heftily from Q4 (slightly in Q4 and greatly from Q12019). And if this business picks up and they scale up the production capacity to 70 million pairs of lens per annum, it’s going to greatly benefit the shareholders.

Optical Fibre (OF) and Optical Fibre Cable (OFC) and FRP expansion:
Already doubled the OF capacity from 1.5 mn FKM per annum to 3 FKM per annum and doubled OFC capacity from 4.5 mn FKM per annum to 9 mn FKM per annum in Bhiwadi plant. But these two were done long ago (because it was mentioned in AR 2017, so no need to consider these two as currently completed capex or capex about to be completed).
Dubai FRP capacity also expanded – from 0.4 mn Kms to 1.4 mn Kms (must have been completed in before May 2017 since the status was mentioned as complete in AR 2017)

Additional OF capacity in Dubai: 4mn FKM per annum capacity commissioned in Dubai. This must have been completed in Jan 2018, because Q2 press release notes said the expansion plan announced for Dubai and Q3 press release notes said Dubai OF capacity expansion is commissioned. This 4mn FKM capacity in Dubai is more than what we have in Bhiwadi – 3mn FKM. The revenue from this will start getting added from Q4.

Capacity expansion in progress:
OFC facility in Mauritius – 0.7 mn FKM (is in progress as per Q3 press release notes). Note Bhiwadi OFC capacity is 3 mn FKM. So this new capacity is almost one fourth of existing capacity.
FRP manufacturing plant in China – 0.8 mn Km per annum (is in progress as per Q3 press release notes)
OFC facility in Silvassa – Not mentioned the capacity anywhere.

In short:

1. Ophthalmic lens production coming online from March 2018. And production capacity scalable to 3 times based on market response.
2. OF capacity - 4mn FKM per annum coming online from Feb 2018 in Dubai (roughly guessing because it must have been commissioned at the end of Jan). More than doubling the current capacity of 3mn FKM.
3. OFC capacity – 0.7mn FKM per annum in Mauritius, unknown OFC capacity in Silvassa must be coming online in few months (most probably in the beginning of Q1 2019).
4. FRP - 0.8mn Km per annum FRP in China (must be coming online in few months). This will take the overall FRP capacity from 2.6mn Km (1.2 mn Km in India + 1.4 mn Km in Dubai) to 3.4mn Km. That’s 30% expansion in capacity.

Source of fund:
You can see that most of the capex is already complete. For the ongoing capex, company is raising fund. Board approved issuance of convertible warrants to the promoters for an aggregate sum of 42.5 cr divided into 1 cr warrant convertible into 1cr equity shares. That’s 42.5 rs per share. That’s way more than CMP (39.35). This shows management’s confidence in future growth. Also it’s going to increase promoter’s holding… and of course dilute the equity. Current number of shares outstanding = 16.266cr. Now add another 1cr to it.

Disc: Invested

[Capsule91]

Jk cement…

The information available about capex is very little in the company website and bse domain,yet i am trying to provide the maximum of my knowledge…

Source q3 result bse notification
% capacity addition to present grey cement capacity is 60percent…
The type is grey cement …
The present grey cement capacity of this company is 10.5 MnTPA across five plants in India
type brown field expansion
Timeline to completion 24-30months (citation needed)

This exercise is only a part of the total planned capex of 100percent of the current capacity with a target timeline of 5 years…

funds required-2000cr
Source of fund-internal accruals +debt as per news report , not announced officially (also missed the concall to ask)

According to annual report 2017, the current minimum growth demand of grey cement is 5-6% cagr

Please form an idea of the detailed industry and company outlook in the following to documents extracted from the AR2017…
jk.pdf (763.7 KB)
jkkk.pdf (60.1 KB)

A very recent news report on the planned capacity

JK Cement plans to nearly double production capacity in 5 yrs

Disclaimer-not invested, researching

[PE_Ratio]

Few more points on Aksh:

1. Aksh has more than 10,000 registered e- mitra kiosks in Rajasthan, covering 33 districts with 276 blocks and 5884 Gram Panchayats. These kiosks provide access to integrated services with eased processes including O.P.D Registration, Medical services, Bills and Recharge, Ticket Booking, National ID/ PAN card and even Passport, Land Records, Micro ATM and many more. Besides, Aksh is in a Banking correspondence contract with Bank of Baroda, to promote banking services. Services comprise of opening of Saving bank, Time Deposit & Recurring Deposit accounts, collection of biometric and demographic details, providing Micro
   Insurance and processing loan applications. The key focus areas for Aksh will be to create awareness and educate rural habitants about savings habits, use of micro finance solution & RuPay card, along with imparng knowledge about optimal funds management practices and debt counselling. In addition, over 100 Lakhs Aadhaar have been enrolled nationwide, under UIDAI project.

They once had plans to sell Patanjali products in their e-mitra kiosks. That was discussed in the AGM. That didn’t materialize. But who knows, this plan may materialize in the future. Also, now they are planning to distribute ophthalmic lenses (which they are going to produce from March 2018) through the e-mitra network. That’s again an added advantage. They keep expanding this e-mitra network and keep coming up with innovative ideas to utilize them more profitably.

Disc: Invested

[Capsule91]

Udaipur cement works…

1.Present capacity 1.6mtpa post capex , total 344%capex hike
2.738cr of fund was required, out of which 525.2cr was long term debt taken, rest internal accruals
3.The new capacity was commissioned in mach 2017, presently the topline has jumped 400% 9mo9m
4.debt to equity ratio post capex= 2.6
5.In negative working capital state, ratio=0.6
6.Subsidiary of jk laxmi cement…
7.type of capex-green field, grey cement
8.Industry outlook- 5-6% cagr demand growth

Disclaimer-Interested and watching, not invested

[Agarmalwa]

Wonderla Holidays is also one such company, continuously company is adding new parks and adding values in existing parks

[Capsule91]

Can you please take the trouble and mention the capex in details with the 8point presentation requirednof the thread…

[ruffles]

Deepak Nitrite:
It is in the business of chemical intermediates 1) Basic chemicals 2) Performance(Whitening) chemicals and 3) fine and speciality chemicals used mainly by colour, agrochemical, pharma, petrochemical, textile and paper industries. They are into B2B business and deal with mass manufacturing. Their products are targeting import replacement market and this philosophy is still continuing.

They have diversified products with leading market share in many of the products. They sell in both domestic and exports market and maintains long term customer relationship.

Gross margin: 40 -35%
EBITDA: 10-12%
PAT: 3-4.5%
Debt/Equity: ~1 post the new capex it will soar to ~2.0 but gradually will come in control.
Ebitda/interest: 5-6

Share holding pattern: 46% Promoters, 23% institutions

> New CAPEX
Setting up a greenfield project to manufacture Phenol and Acetone as India’s largest manufacturer. This will cater to the domestic demand which is currently fulfilled partially from existing domestic player and majorly from import ~80%. They have already done seed marketing for the new plant. Initially plant will operate somewhere around 65% capacity however not fully sure about it.

Project capacity: 2lac MTPA Phenol and 1.2lac MTPA Acetone
Project cost: 1400 cr out of which 840 cr raised from debt rest from QIP and internal accruals.

Project progress: Entered the last lap of construction completion and finishing work. Edelweiss anticipates commercial production to commence from Q1FY19 with nearly 65% utilisation levels during the first year of operations.

This is a good opportunity and we can see in the share price graph of the company. It has A rating from agencies.

Edelweiss view:
Our earnings estimates per share for FY18/FY19/FY20 are INR 3.5/14.6/18.0, respectively. We value the company at 20x FY20E EPS of INR18 and initiate with ‘BUY’ recommendation and target price of INR360/share.

Promoter view:
We are on the cusp of commissioning- our Greenfield mega project for production of Phenol & Acetone. This global scale plant, aligned to the Make-in-India initiative, is poised to commence commercial operations shortly. This will elevate our performance and the opportunities for forward integration will open up new platforms for growth in the ensuing years.”

Reference:
http://deepaknitrite.com/pdf/investor/F-Investor-Communication.pdf
http://deepaknitrite.com/pdf/investor/Deepak%20Nitrite%20-%20Corporate%20Presentation_Feb%202018.pdf
https://www.edelweiss.in/research/stock-specific-reports-1/Trading-BUY-Deepak-Nitrite-Ltd-03ec8d

[Capsule91]

great presentation

[sushildarveshi]

Valiant Organics planned for Capex as below (4x from original). They have completed certain portion / or complete portion of it - not sure how much. They have got Environmental Clearance recently for complete portion - so mostly it is 100% complete but can’t say with 100% certainty. Capacity is funded through Internal Accruals.

Disc - Invested from lower levels

[sushildarveshi]

Premco Global completed capacity expansion but company is not performing well (Disc - invested). Will not go in details as company is not performing well after expansion)

Meghmani Organics - Capacity Expansion Plans - Not invested

[Agarwala]

National Aluminium Company recently released its capex plan for 2032

The plan provides a strategic way forward for the company up to 2032…The long-term strategy foresees the company to reach a turnover of Rs 31,248 crore”

The new plan expects the company to reach a turnover of Rs18,171 crore by 2024 with the augmentation of the smelting capacity to 1.1 million tonnes and refining capacity to 3.27 million tonnes, it said. The corporate plan also seeks to diversify into commercial mining in bauxite and chromite, conductors and lithium-ion batteries, the filing said.

“…the long-term corporate plan…has been prepared by top consultant KPMG to position Nalco in a growth trajectory taking into account emerging market conditions and evolving global scenarios,” the company said.

The road map has been developed as per Niti Aayog’s guidelines, envisaging three years action plan, seven years strategy and 15 years vision to have progressive growth of the company. “This also includes forward looking new vision, mission and values of the company, which will give a direction to the company assuring steady growth, minimising the price volatility of commodities, while ensuring profitability,” the company said.

NALCO lines up 3 projects, invests Rs 25,000 crore
The three plants that have been inaugurated on January 5, 2018 are: the South Block Bauxite mines, Panchpatmalli, 18.5 MW power unit at alumina refinery, Damanjodi and “first of its kind” Nanotechnology-based defluoridation plant at Angul.

Management speak: other plans:
NALCO was working on a new business model to expand its aluminium, alumina and power capacities, Chand said the alumina refinery at Damanjodi is all set to go for an expansion with an investment of over Rs 5,540 crore.

The project, aimed at increasing the capacity of the alumina refinery by one million tonne, is likely to be commissioned by 2020 the CMD said.

Setting a target to join the club of million tonne producers of aluminium by 2020, NALCO is gearing up to undertake brownfield expansion of its smelter at Angul with an investment of around Rs 12,000 crore, the CMD said, adding, the expansion would raise production capacity of the smelter by 6 lakh tonne per annum.

Efforts are also being made for early commissioning of Utkal D & E coal blocks involving a project cost of Rs 534 crore, the CMD said.

With an emphasis on value addition, NALCO is setting up an alloy wire rod plant with an investment of around Rs 131 crore, he said, adding, that an aluminium park is being set up at Angul at an investment of Rs 100 crore to promote ancillary industries.

Similarly, a 2.7 lakh tonne per annum capacity caustic soda plant is being set up in Gujarat involving a project cost of Rs 1,999 crore, while the required steps have been initiated for setting up 2 X 660 MW power plants in Odisha, he said.

LME Aluminium prices have again started surging.
The aluminium prices graph of LME can be accessed here. Unfortunately it is not working at present, as website might be under maintenance. I will try to post it tomorrow, but the prices of aluminium have again started surging. Moreover the CMD of NALCO has given a guidance of equally good Q4.

NALCO posts record net profit of Rs 722 crore in Q3

With this, the company has been able to break the highest ever net profit figures in a quarter during the last ten years, “We hope to post similar results in the next mandate,” CMD of NALCO Tapan Kumar Chand said.

Few more points;

1. Recently NALCO declared an interim dividend of Rs. 4.7 per share. This explains the sharp fall on Friday (16 Feb, 18), as the share became ex-dividend.

2. It is a debt free company.

3. With good earning potential, the majority of capex is likely to be through internal accruals.

4. The valuations seem reasonable or on the lower side with TTM EPS of 7 (Face Value 5, and book value over 50. This looks safe bet, provided one keeps an eye on aluminium prices.

Caveat
There is a surge in the prices of inputs also.
Disclosure: Looking forward to invest on Monday.

[ruffles]

Can you explain more on reasonable valuation - how did you infer that - I am just trying to understand about reasonable entry price of a stock.
Second point, I don’t know much about NALCO however 2032 seems to me very far this could remain in PPT as well like the way we make our resolutions.

[Agarwala]

I think it is reasonably priced because:
Low PE of about 10
Price/ book value of about 1.4
Debt free company
Some Capex has become operational during current quarter.
Capex plans that will materialize in 2020, 2024, and finally by 2032.
Good dividend payout (4.7 Rs interim dividend). I am hopeful that the company will also declare a final dividend.
Good guidance by the management for Q4 and surging prices of Aluminium.

[PE_Ratio]

Just watched the interview of MD to BQ. The capex you mentioned is in the Chemicals division. That’s only 540cr capex and going to add only a little to the top line in FY19. Only in FY20 and Fy21, we can expect some decent addition to the top line by these capex. The MD in interview said that they are going to announce capex in the pigments division after Q4. Let’s see how much and how soon that is going to be.

[Agarwala]

Here is LME aluminium price graph. Q3 prices are on the right side. Q4 prices (so far) are on the left side. The left graph shows an uptick.

[sjsandesh]

Gravita India also has plans of setting up recycling plants in India and across the world.

[dcoolsam]

Some of the speciality chemical companies expanding.
I feel Navin and NOCIL have an edge. They are growing YoY.
Navin is a leader in Flurochem and NOCIL in Rubber chem.

[KushalKasliwal]

Hello fellow VP’ians!

I wanted to bump up this theme given large capex plans from various Chemical and Pharma companies during current environment.

Will come back with a detailed list of companies…