more than 30% of home cooking is done with gas in the EU
A new study by the independent research organisation TNO estimates that over 600,000 children in the EU-27 suffer from asthma due to gas cooking, which costs society an estimated 4 billion euros annually
gas cooking is significantly more inefficient than electric options
The energy efficiency rate of gas appliances is at 40%, compared to 74% of an electric alternative.
Gas cooking is a threat to public health. Simply breathing at home after you have cooked lunch can be harmful to your health if you own a gas hob which is the case for many people
The European Commission now has an opportunity to phase out gas cooking in the EU households as it reviews the ecodesign rules for domestic cooking appliances. Doing so would slash CO2 emissions, and dramatically improve indoor air quality.
Commission officials are expected to present a regulation proposal for home cooking appliances during 2023
Since to generate electricity from gas the efficiency is at 47-57% at most, actual effeciency still at 43% at the best case .In reality even less.
Its another eyewash just like EV bikes getting charged from coal powered energy and claiming green revolution .
In our country , most houses have gas oven at home ā¦how many asthma cases do you see ?? More mollycoddling leads to more malaise and thats what happens with the developed world .
Disc: No idea about DHP at all but could not resist commenting about the clear misdirection with that efficiency thing .
Exactly, this is what I was thinking,
But looking at current war scenario and gas cut from Russia, EU desperately looking to cut gas demand, they canāt tell consumers directly so they will have to trick it this way only.
Company is engaged in import substitution products who integrate forward or backward with its existing product line or aarti group product line
Why stock price gone down?
There are several reason,
Promoter selling
Textile (Dye & Pigment) demand is down
Agro demand from EU customer is down because they are affected by higher energy prices due to ongoing war
PAP plant execution issue and difficulties in scaling up
Blast at Sarigam plant
PAP price fall
Letās see how long term or short term these issues are,
Promoter selling
I donāt think this is a big issue, many people in public shareholding are related to promoters and I think their cumulative shareholding will be around 55-60%
Promoters will start buying in the first instance they see positive demand scenario.
Textile (Dye & Pigment) demand is down
This demand will come back once chines economy pickup, this is expected to happen in few months.
This problem will go away soon.
around 40-45% revenue comes from Dye & Pigment industry.
Agro demand from EU customer is down because they are affected by higher energy prices due to ongoing war
This is a Chlorination business, which is high margin. my best guess is around 7% revenue come from EU.
There are two possible scenarios,
a) Energy prices reduce in EU and demand picks up, this looks unlikely scenario.
b) Valiant find new customer, which is possible but I completely unaware how much time it will take,
anaway management has commented in earlier concall that Chlorination capacity utilization will increase in few quarters, but Iāll take their comment with pinch of salt
PAP plant execution issue and difficulties in scaling up
Iām convinced that management is capable enough, PAP is difficult thing to manufacture so this was always a possibility,
but management has not given up, they are able to run the plant in batch mode at 500MT/M, and trying hard for success in continuous mode.
This plant is very important as around 220cr of assets are invested in it, lets see if it was a good capital allocation?
PAP is a net import product in India, and their subsidiary manufacture paracetamol which use PAP as raw material, earlier they use to import hundred percent PAP requirement from China,
it was a good opportunity to integrate forward with own subsidiary and cut costs, also reduce/eliminate dependability on china.
So it was a good capital allocation at that time, but now things have changed,
Sadhana is coming up with huge PAP capacity, and meghmani is coming up with big capacity, both of them got under PLI scheme, together their capacity will exceed total domestic requirement.
So net import India will soon became net export India for PAP.
I donāt think company can make great ROCE on this business even when they consume captively.
at batch mode I donāt think they will even breakeven.
so around half of total investment in assets is gone wrong.
which now makes it bad capital allocation,
now key is to see if they are able to successfully put plant in continuous mode, otherwise this investment is doomed.
(even if they put the plant in continuous mode, my guess is they will not be able to make more than 14-15% EBIDTA)
Blast at Sarigam plant
Management team is capable enough to solve this issue, they are already started production and scaling up in progress.
PAP price fall
PAP prices in India are decided by prices in China, so we can consider it as a commodity product with no pricing control.
So for me only two issues are real,
3. Agro demand from EU customer is down because they are affected by higher energy prices due to ongoing war
4. PAP plant execution issue and difficulties in scaling up
even Q3 may get solved with time,
but Q4 is more important, if they solve it completely in continuous mode, even then I expect margins will never go back to previous 27-30% range,
so I consider 20-22% range is fair assumption going forward.
Does investing in this company at CMP makes sense?
after 5 years I see company making 2000cr revenue,
at 13% PAT should be 260cr
at present market cap of 1300cr its trading at future PE of approx. 5 or in other words I see it at approx. 3000cr mCap at 12 PE.
(only when they able to solve PAP plant issue, otherwise some 2000cr mCap can be expected)
So downside is protected and upside in open at CMP of 485,
I invested at 650 per share which is I now realised provides less margin of safety, so it was a mistake.
Currently Iām exploring other opportunities in market which may provide better risk rewards.
Disc.: Invested, may sell or buy more, not a chemical sector expert, valuations are rough work, do your own due diligence before investing.
Hi @kalpesh4430 any thoughts on the severe price correction of Satia despite good results. How do you see the paper cycle play out? Prices are expected to come down but so are our costs due to increased pulping capacity, and reduction in fuel costs. How do you see this impacting growth?
Markets price are driven up & down with emotions, business is performing well but I think prices will go up only once fed interest rate up cycle is over.
Demand for paper in India will be strong, problem is always with supply side.
Many companies started doing capacity expansion with availability of cheap money,
most of these less efficient players will find themselves in difficult time ahead.
Satia has no demand issue as it is backward integrated, efficient, one of the lowest cost producer. with increasing interest rates most commodities are expected to decrease in prices, paper is no exception. I think this downcycle will be short lived because-
World can not afford inflation same way they can not afford recessions, with all the experience of previous credit cycles, central banks are now more wiser to handle such situations.
Balance sheet of Indian corporates are strong, banks are in better shape
Satiaās state boards business will only grow from here as gov wants to reduce weight on childās shoulder & they have found a solution (give writing pages in book itself and eliminate notebooks) a big positive for Satia.
Rural economy is coming back, green shoots are visible in commentary of many companies. (WPP market is saturated in urban, but growing in rural)
China coming back.
You are right, with commodities going down revenue will also go down a bit but with increasing demand from text book boards it will be compensated & with completion of recent capex efficiency expected to increase.
I think prices may go up as soon as emotions for equities turn positive globally. until then let the intrinsic value run up.
Do not pay much attention to prices in fact I see prices only once a week so that it wont affect me much emotionally.
Hi Kalpesh,
Appreciate all your posts and detailed rationale for each of your investments. Quick question - is the moderation/ reduction in oil prices the key trigger for your additional buying in Valiant?
Or it is the expectation of Capex on PAP, OAP and Pharma likely to contribute positively from FY24 onwards?
I changed my mind, selling Satia as I feel I can get better bargains few months down the line. I need to keep some powder dry.
Will relook at it after some time also looking for other opportunities available in market.
Management has handled growth, balance sheet etc very properly in the past
Spread is great & so ROE
Recently done branch expansion
margins at all time low, due to high interest rates & branch expansion
Green shoots seen in rural economy after a long time
I think this is a right time to buy it as growth is about to kick in and interest rates will start declining in matter of few months (52% of borrowing in floating rate and all lending is in fixed rate)
Risks: Refinancing/growth capital risk as banks are playing very safe in current environment, Promotor drawing high salary and rural economy may not pickup etc
Disc: invested, may change my mind anytime, consult with your financial advisor before taking any decision.
Not at all looked at oil prices for buying it, though process is simple, earlier it had a fair value of 1500-1600 per share, management done capital allocation mistake, now its revised fair value is 1000-1200 per share, but market punished it to below 400 per share.
after failing to put PAP plant in continuous process for a long time, management now putting it in semi continuous process, few other capexās also coming up.
I had exited from the script when it rallied. My reason for the sell were:
I had entered when Add shop published that a FPI/FII will be purchasing ~2% of stake. That gave me confidence that the company isnāt a fraud. I exited when they published that the FPI/FII is no longer investing / cancelled (I donāt remember how exactly it played out but it looked fishy when the whole deal got cancelled).
Other reasons:
Valuations too high.
Management has a private company (Dada organics, iirc) which sells the product at a fixed margin to the public company and the public entity then sells at whatever rate market feels right.
Everything signed by the M.D. And lack of transparency.
