I G Petrochemicals Ltd

Stock Opportunities
1

Brief Introduction

I G Petrochemicals Ltd. (IGPL) promoted by Dhanuka Group is an established market leader in Phthalic Anhydride (PAN) started its production in 1992.Currently, total current capacity stands at 1,69,250 MTA

Orthoxylene (OX),3rd derivative of crude is the single raw material required for manufacturing of PAN.

The plant is located at MIDC, Taloja in Raigad District, Maharashtra, India, 50 Km from Jawaharlal Nehru Port Trust (JNPT), Nhavasheva, Maharashtra ,giving the company triple advantage 1)in the vicinity of chemical belt in western india (70% of domestic sales) where majority end user are located 2)close to Gujarat from where 70% of raw material is sourced 3) close proximity to ports & 90% of export of PAN happens at this port only.

Can check export data with this link https://www.zauba.com/exportanalysis-phthalic+anhydride-report.html

IGPL operates it’s plant based on the processes of the licensor M/s Wacker Chemie GmbH, Germany. The process is Wacker’s Von-Heyden’s Low Energy Process and the plant has been engineered by M/s Lurgi GmbH , Germany

The Company has been named in the Fortune India Next 500 in July 2015 edition, a comprehensive monthly magazine covering the ranking of India’s Mid Sized companies. The Company is ranked at 168

Usage of PAN
Phthalic Anhydride (PAN) is used in manufacturing plasticizers, which are most essential in making PVC products, shoe soles, cables, pipes and hoses, leather cloth, films for packaging and other products.
PAN is 2nd most imp product used in manufacture of paints and coating as an intermediate of alkyd resins
PAN is also used in the production of unsaturated polyester resins used in making fibre glass reinforced plastic used for building materials,marine & transport industry.
It has application in CPC used in printing inks,Photovoltaic cells.

Customers
• Big paint companies like Kansai Nerolac,Berger,Akzo Nobel.
• Plasticizer company KLJ Plasticizer (Largest Manufacturer of Plasticizer in SE Asia),PCL Oil & Plasticizer
• MNC chemical co like Scott Bader,Ashland,Sabic
• Domestic Chemical Co like Aarti industries
• AOC Resin (Global supplier of Polyester resin)

Competitive Advantage

  1. Lowest cost producer of PAN globally mainly due to
    • Self sufficient in-house generation of power
    • Higher recovery and reengineering process
  2. Maintained consistent highest capacity utilisation 90% for last 5 yrs despite capex which shows huge consumption pull for PAN.
  3. Diversified product use in multiple industries resulting in low dependency on any particular customer.
  4. Great locational advantage near to port resulting in huge logistic cost saving, better inventory management & lesser lead time.
  5. Better recovery process as steam generated from process are utilised resulting in lesser fuel cost.
  6. Only 4 other domestic manufacturer but only Thirumalai Chemical being major competitor
     Thirumalai Chem(1,45,000 MTA) 2nd largest manufacturer
     Asian Paints uses mainly for captive consumption
     Mysore Petrochem closed operation at Raichur, Karnataka, belongs to Dhanuka group of I G Petro
     S I Group mainly for captive consumption

Positives

  1. Started paying Div Re.1 in FY 15 after completing major capex.
  2. Promoter holding good 72.22% stake without any shares pledged.
    Increased stake from 71.88% in Dec 13 to 72.22% purchasing shares from open mkt
  3. Debts are reducing significantly

Financial Yr Debt(in Cr)
FY 14 185 Cr
FY15 131 Cr
H1 FY16 116 Cr

4 Anil Goel, very known investor is increasing stake from 1.54% (4.75 lacs) in June 15 to 1.79 %(5.5lacs) in Sept 15.
He is holding 1 lac shares (.32%) in his wife name Seema Goel. So in toal holding more than 2 % or 6.5 lacs share.
5. KLJ Plasticizer, one of its major customer & Largest Manufacturer of Plasticizer in SE Asia holding 2.7 lacs share.It seems they are also confident about IGPL future
6. IGPL’s wholly owned subsidiary IGPL (FZE) entered into a Joint Venture (JV) with M/s. Dubai Natural Gas Co. Ltd., UAE (“DUGAS”) for the manufacturing of Maleic Anhydride with a capacity of 45,000 MTPA. DUGAS is a wholly owned subsidiary of the Emirates National Oil Company (ENOC) and are a well diversified large conglomerate with interest in the oil and gas industry. This JV augurs well as Middle East is currently relying on import of MA.
7. Upgrade in the Credit Rating for Long Term & Short Term Borrowings by India Ratings & Research

Particulars Old Rating New Rating
Long Term Borrowings IND BBB+ IND A-
Short Term Borrowings IND A2+ IND A1

8 Absolving of contingent Liabilities related to Excise & Custom duty of Rs 204 Cr as DTA Sales & Catalyst Case decided in IGPL’s favour in Fy 15.
9. Low Crude prices are going to benefit PA manufacturer in longer run as their raw material is crude derivative Ox.
10. Anti Dumping duty on imports of PA from Russia(largest exporter of PA to India) & Japan of 106-159$ per MT from 04 Dec 2015
11. Opposing parties Japan & Russia only targeted IGPL in their case saying IGPL sales, capacity utilisation, Gross Profit, capacity have improved & other players are non performing because of competitive disadvantage with IGPL
Must Read page 41-42 of Notification in AntiDumping case (http://commerce.gov.in/writereaddata/traderemedies/adfin_Phthalic_Anhydride_Russia_Japan.pdf)
12. Indian PA industry demand expected to grow at 7-8% annually & india being 3rd largest consumer of Plasticizer will continue with PA demand.
13. Return on Capital Employed ROCE improved significantly to 25.5% in H1 FY16
Financial Yr ROCE(%)
FY 13 4.8
FY 14 8.6
FY 15 20.2
H1 Fy 16 25.5

Negatives

  1. Due to abrupt fall in Crude Price inventory loss can be a Partypooper
  2. Drastic drop in crude prices causes buyers to keep minimum inventory.

Financials

CMP-100 MCap- 307 Cr
BV-91 Expected FY 16 EPS- 28
FY16 P/E- 3.5 Debt/Equity= 0.4
Revenue- apprx 1100 Cr Sales/MCap-0.28

Conclusion
EBIDTA for H1 FY 16 stands at 73 Cr against H1 FY 15 of 43 Cr,a healthy 71% increase on account of greater operating Margin aided by falling Crude.
PAT for H1 FY 16 stands at 15 Cr against H1 FY 15 of 42 Cr, 185% increase with debts coming down & capacity utilisation of more than 90% it is expected to improve further
Debts have come down drastically & at comfortable position which augurs well for future of the company.

With new JV of 45000MT for Maleic Anhydride with ENOC it is a great opportunity for future growth in this new product whose most customers are similar & ENOC being Oil producer raw material availability will be also helpful. Middle East being importer of MA so this JV seems to be rightly placed.
Sales can come down drastically because of fall in crude prices but OPM & NPM will definitely increase because of fall in raw material prices & Sales.

At CMP of Rs 100 IGPL trading at just P/E of 3.5 & Sales/MCap of 0.28,Debt reducing I feel its available very cheap.
Disc:- Invested
Looking forward for your queries

6 Likes
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Looks like a good analysis. And for past few days I have been trying to find companies that would be benefiting from the fall in crude prices.
Till now I was only able to find Kothari Petrochemicals, but unable to do a detailed study as you have done. Now I have IG Petrochemicals also on my radar.

Honestly, I am looking at various news articles, Indian & otherwise, to convince myself of the industries that shall benefit and hence the companies that shall benefit from the fall in crude prices. But I only find that India as a country is going to benefit due to this in the long run.

If there is anyone who can provide some analysis at this point in time (where the markets seems attractive) it would be really great.

Cheers

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Result was as per my expectation of Rs 1.96 because this quarter had very volatile crude prices resulting in lower sales as buyers delay their purchases.

But seeing export data https://www.zauba.com/export-phthalic+anhydride/hs-code-29-hs-code.html from Nhava Sheva Sea Port from where all the exports are done by IG Petrochem, I feel March result shall be very good

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Hi Abhishek, are you still tracking this stock? Any view of late?

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Booked half qty near 305-310 but still i am very bullish on IG Petro infact after acquiring Maleic Anhydride plant from Mysore Petroleum & JV with DUGAS,UAE will make it bigger player in Maleic Anhydride.

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Acquisition of mysore petrochemicals of same promoter is a bad practice.

Mysore petro sales for last 2 fiscals are less than 30 crores with profit of 7 cr and 1 cr, but IG paid 90cr for this. This is not correct from management decision , for the same reason stock corrected from 350 levels to 220 levels.

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Can you please mention the source of this information? I noticed in AR 2015-16 about dumping of products.

Low cost products are being dumped from all over the world in India. India does not appear to be a low cost producer of these products.

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http://www.plindia.com/ViewReport.aspx?rpt=1968

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some serious expansion plans

image
image928×355 23.5 KB

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655831cd-8072-4238-8e51-8be64dd91418.pdf (1.4 MB)
Good performance by ig petro
Expecting same in next quarter too

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Good results by IGPL for June2018.

  • Good sales growth of 19% from 297 cr to 352 cr. (in an environment when the other PA player Thirumalai Chemical showed degrowth in sales).
  • EBITDA margins improved to 24.4% from 24% yoy.
  • This quarter had a one time exceptional loss of Rs. 9.5 cr. Operational EPS without considering one time loss works out to be 16.14 for the quarter.
  • Management commentary was positive and expects to continue the momentum going forward.
  • Indian Phthalic Anhydride industry is expected to grow at 6% cagr in future.
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I G Petrochemicals Ltd. FY18 Annual Report Notes

  • Revenues increased by 10% during the year from Rs. 1035 cr to Rs. 1147 cr. EBIDTA improved by 58% to 271 crores, while PAT grew by 44% to 147 crores. The remarkable results are owing to strong domestic demand, efficient operations, better realisations and cost optimisation from expansion.
  • During the year, the export turnover of the Company was 21,677.53 lakhs as against 23,139.61 lakhs in the previous year.
  • Gross margins have improved quite substantially from 27.57% to 36.39%. Major gains in profitability is coming from increase in chemical prices.
  • Company is one of the lowest cost producers of PA globally.
  • IGPL has three state-of-the art manufacturing units strategically located at Taloja, Maharashtra. Capcity of PA as per AR17 was 169110 mtpa. Company is the largest PA manufacturer in India.
  • As a part of its strategic initiatives, the Company acquired Maleic Anhydride (MA) business of Mysore Petro Chemicals Ltd. in 2017. Further there is high operating leverage from this acquisition due to the fact that raw material for MA viz. wash water is a derivative of PA.
  • The demand growth in the Indian PA industry is around 6% annually and is considered to amongst the fastest.
  • A strong domestic demand of PA of 3,75,000 MTPA will strongly position domestic manufacturers like us. Currently, India’s MA demand is around 60,000 MTPA.
  • We further plan to increase PA capacity through brownfield expansions which will come on stream by 2019. Besides, the Company is also planning to introduce specialty plasticizers as a part of downstream expansion. This will further strengthen the Company’s positioning in the industry.
  • Capex done during the year is Rs. 117 cr. on a Gross Block of Rs. 740 cr.
  • Invested Rs. 28 cr in it’s wholly owned subsidiary IGPL International Ltd.
  • Company has cash and mutual funds of Rs. 70 cr. They are debt free on net basis.
  • Company has contingent liabilities of Rs. 95 cr. approx.
  • Foreign currency liability of 4,077.11 lakhs (31st March, 20173,501.89 lakhs, 1st April, 2016 `3,792.62 lakhs) shown under Trade Payables (Current liabilities) has been disputed. A counter claim has been made, however this liability has been converted by applying exchange rate at the close of the year as per Accounting Standard.
  • Investment in additional capacity expansion will place IGPL amongst the top three PA manufacturers in the world.
  • IGPL has strengthened its manufacturing processes with strict quality control and sharpened its R&D capabilities to compete across geographies. The world class quality product with Six-sigma technique to improve processes, has placed IGPL to further capitalise on growth opportunities.
  • Phthalic Anhydride (PA) is a versatile intermediate in organic chemistry and a downstream product of a basic petrochemical, Orthoxylene (OX). It is used as an intermediate to produce Plasticizers, Unsaturated Polyster Resins, Alkyd Resins & Polyols. It finds application in both consumer durables to non-consumer durables. Its end users are paints, inks, coatings, boxes, containers and packaging films industries among others.
  • Major challenges include competition from global players in terms of dumping their products in India. There is an antidumping duty imposed by the government on Taiwan, Korea, Russia, Japan & Israel. These anti-dumping measures ensure fair trade and provide a level-playing field to the domestic industry. Also, there is an import duty of 7.5% levied on Phthalic Anhydride, to protect the domestic industry.
  • Rising private and government spending in infrastructure has pushed up demand for PVC, which in turn, has spurred PA demand.
  • The JV entered into between IGPL (FZE) and M/s Dubai Natural Gas Co. Ltd. for the manufacture of Maleic Anhydride is under implementation.

Regards
Harshit

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What is the current capacity utilization? Do they have a capacity constraint similar to Thirumalai currently

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Hi.

Capacity utilisation was not given in the annual report, nor has the management given the details in quarterly investor presentation. Management has talked about higher capacity utilisation and growing demand as the reason for new capacity expansion plans.

Regards
Harshit

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So it looks like they have same issue like Thirumalai over short term. Enough demand and high prices, but cannot deliver enough volume growth as there are capacity constraints as of now. That might be the prime reason for both these stocks correcting over last 3 to 6 months (besides the broader mid cap correction).

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Hello

The stock price has stabilized at around Rs 470-500. Can it be added at these levels?
Have invested at Rs 600 levels. Want to hold it for a long term.
Right now they have a capacity of 1,75,000 MTPA and expansion of 53,000 MTPA will happen by 2HFY20. This along with entry into advanced plasticizers seem to be major triggers.

Came across this interesting article on IGPL on a website thestellarinvestor.com explaining its growth prospects. Target of Rs 640

Disc: Invested

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Hi I have two concerns on IGP:

  1. Enclosing SEBI order which had barred Dhanuka group from accessing capital markets for some irregularity in LTCG. Just came across need to study in detailed.
  2. There is huge difference between standalone PAT and CFO From MArch’09-18. PAT is =379 and Cumulative CFO is 612Cr. Source Screener.

IF any one can throw more light on above would be great1486630854081.pdf (207.1 KB)

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Promoter entity GEMBEL TRADE ENTERPRISES LTD is selling in open market from last 2 days. The selling starts at exact 3:00 pm. Any body else tracking this company.

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Strong PAN prices continues:

PAN monthly
PAN monthly1014×483 98.5 KB
PAN Yearly
PAN Yearly905×342 34 KB

Source: https://indianpetrochem.com/