Kiri Industries: Loan reduction and demand surge

The chemical dye & pigment industry has seen a major boost due to shutdown of a global competitor in China due to environmental concerns. I’m analyzing the situation using Kiri Industries, a leading manufacturer in India.

Kiri Industries
CMP - 169
Market Cap - 448 cr

Starting off with the news:

  1. Debt reduction
    The company’s total debt has been reduced from Rs 853.13 crore to Rs 410.62 crore. Its debt decreased by almost 51.87 per cent as compared to previous fiscal year. Kiri Industries’ repayment of the debt was done in initial installments. According to the company’s management, it will repay majority of the balance debt during FY17 in installments.

  2. Competitor plant closure in China
    A company called Hubei Chuyuan, which is the largest dye intermediate manufacture in the world makes 2,000 tonne, which is 30 percent of the global consumption shut down the plant. The Chinese government has asked most of these polluting plants to move from the east side to the west side.

India is the second-largest manufacturer of H-Acid, globally after China. H-acid is the chief dye intermediate used in manufacture of black dyes. However, H-acid is the most polluting industrial effluent that generates 50 kg of waste for every one kg of usable material. It is toxic and non-biodegradable.

Market situation
The Company has two major division of products-dyes: intermediates and chemicals. The intermediates which are used for producing dyes and these intermediates were priced in the range of ₹300 to ₹350 per kg and it has significantly increased during the last one month due to the closedown of a major plant in China, which was the world’s leading
supplier. There were other plants in China which also closed down.

The average price of H. Acid during the previous financial year which has been ranging from Rs. 300 to Rs. 360 per Kg, has now shot up to about Rs. 900 to Rs. 1000 per Kg and average price of Vinyl Sulphone during the previous financial year which stood at Rs. 160 to Rs. 180 per Kg, has now shot up to about Rs. 240 to Rs. 275 per Kg globally.

March 2015 financial position
The company had a net loss of 33 crore on 783cr turnover. Out of which interest payment was 84 cr on a total long term debt of 736 cr. EPS = (17) based on 2 crore issued shares.

The debt has been halved will be repaid over FY17 in installments. Besides, turnover due to China shutdown is expected at 1000 cr for FY 16 and 1200-1300 cr for FY17 if China situation continues for another 6 months.
However, this revenue growth will purely be on the back of price increases and not volume growth. Volume growth is difficult due to environmental issues.
Margin improvement will be in the range of 30-40% (current OPM for Kiri is ~11%).

March 2016 assessment
December ended Consol PAT as per screener is 14.6cr on a topline of 770 cr. This is after interest payment of 60cr.
With March qtr expected to be better and management guidance of 1000 cr for FY16, PAT can ~20cr (being optimistic here). EPS = 10 (-17 for FY15) could be quite a turnaround.

For FY17, repayment of loan will add another 30cr to the profits and with management guidance of 1200 cr. topline, things look good for Kiri and for the industry in general.

Recovery in China remains the biggest risk. Although it will not be easy, Chinese competition can return within a few months. As of now there is no update on the shutdown but the Chuyuan could either make changes to their pollution control or shift their setup. News reports claim either of them could take atleast 6 months. Kiri will have a chance at grabbing some of the market share until then. Its more about when than if.

Another risk is that the stock has already run up almost 100% in the last 1 month on the back of the above news and is trading at its 52 week high of 170.

Views invited.

Disclosure: not invested yet.
PS: My first topic here, please feel free to point out if there’s any mistake in the workings/ analysis.


any details about the singapore associate company from which all the profit is coming into the company financials? that is very confusing as to why the company is treating that as an extraordinary income.

this is a gujarat based company - ahmedabad base … i am also from same city … so have some contacts around the industry …

it was a completely write off company till 2011 … but dystar holding which is a part of large dystargroup hs started turining around ( ) and as kiri is holding ard 38% stake in the singapore arm …is getting a good amount of profit since last 2years …

as per the sources -dystar holding is valued at ard 1200-1400 cr.

another siginificant development ( check bse website ) is redemption on fccb conversion is re strcutured due to to which major equity dilution overhang is significantly reduced …

so accding to me 3 major development …

  1. equity major dilution fear receded … ( maximum 48 cr equity till 2022 on cnversion of fccb/warrants )

  2. major rise in in it’s product h acid and VS .

  3. dystar holding investment of 95cr is solid investment

recently promoter got converted warrant in shares at 136 rs.

disclosure - invested

may cross check …

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One major concern here is the lack of access to information about what is happening in dystar. It can be a very good opportunity if dystar actually starts paying decent dividend to kiri. Otherwise, there is the fear of reported profits not being converted to cash flows for Kiri and hence its shareholders.

Disc: Invested.

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Found this bit of an announcement from last year that might be interesting.

Kiri had sued its JV partner in Dystar and the Dystar group itself for enforcing its right over Dystar IP and governance as a significant minority shareholder in the venture.

Kiri Corp Announcement.pdf (1.1 MB)

Kiri’s other JV, Lonsen Kiri Chemical Industries Limited is also a JV with the same group.

Also interesting to note that these shares were pledged by the Company.

From Mar '15 AR:
Pldege of 13,11,677 equity shares to Invent Assets Securitisation and Reconstruction Private Limited, Punjab National Bank and Indian Bank and 13,11,676 Equity Shares to Invent Assets Securitisation and Reconstruction Private Limited.

Can someone help me understand the implications of this announcement made by the Company today:

Kiri Industries Ltd has informed BSE that a meeting of the Board of Directors of the Company will be held on April 08, 2016, inter alia, to consider and approve allotment of 12,94,000 equity shares upon Conversion of warrants issued to Mrs. Anupama Kiri, Promoter Group of the Company at issue price of Rs. 136/- per warrant on preferential basis in accordance with SEBI (Issue of Capital Disclosure Requirements) Regulations, 2009.

This will result in increase in promoter holding but how does the price of 136 stand up against the CMP of 184 today. Will the market correct the share price to 136?

I missed this in the financials. Where did you find the extraordinary income?

in the consolidated quarterly results, eps before extraordinary items is negative, while it becomes positive only after extraordinary items, so the company might be treating this as extraordinary income

The books appear managed.

Consolidated debtors under six months as at 31st Mar 15: INR 425 crores (annual report page 108)
consoldiated sales for six months ending 31st mar15: INR 290 crores. (result for quarter ending mar15)

Even if entire sales is outstanding, debtors under 6 months can not exceed 290cr !

Yes, Dystar has turned around in a big way. For FY2014 the company posted a topline of around 1 billion dollars and PAT of more than 100 million dollars. Kiri looks like a great value buy. But i am not too sure about the management pedigree here. They have been increasing and decreasing their stake based on the price movement of the shares. Also the recievables cycle is elongated which is a cause of concern too. If the management becomes more transparent, we can have a re-rating here quite easily because in 2011 Dystar’s valuation was pegged at 700 million dollars and they did file for an IPO which dint go thru.

Another set of good numbers along with debt reduction.
No doubt no growth in standalone sales, but net profit jumped on less finance costs
This one’s gonna fly high for sure

Good results but on standalone basis the revenue is nowhere near management guidance. Debt reduction certainly helps but that is already factored in the price I believe. Also a key risk remains if the Chinese competitors resume production and stabilize the price. The Company still has a long way to go. What might aid them though is share of profits from Dyestar but there is little information on that.

i have one problem with the result and the problem is that after 9 months ended they were quoting something 183 crore as a associate profits and this q4 also they have shown something 63 crore so how come this total yearly profit comes to 170 crore instead of 245 crore for full year. Am i missing something ??? if it so then please tell me the correct explanation. Help me understand this.

you are correct… share of profit turns out to be 243 crores…
only difference being… the total 170 crores (as share of profit from associates in 2015-16) is audited figure
and the total which is coming 243 crores for the same period has three un audited figures and one audited one (march-2016)…

I doubt if there can be so much difference between audited and un-audited figures…

lets wait for annual report for the accurate numbers

I mentioned on 8th april that books are managed.

wait dude… lets wait for AR

waiting is a never ending game :slight_smile:. Last year AR red flag is still unanswered!

This share has become most favorite stock for punters these days…
80 - 350… 2-3 months…
doubled in last 3 weeks or so…
huge volumes…

is it headed for 1000? Guys any ideas …

Its a given that dye & chemical industry will post blockbuster numbers for June quarter + Kiri has the added advantage of Dyestar valuation not being built in the price right now. As far as I remember Kiri had initiated legal proceedings to claim minority shareholder rights in Dyestar management.

Maybe these factors are now built in the price and will not be a good point to enter. I rode the punter wave from 172 to 250ish but nothing in the fundamentals gave me confidence to stay on.

Same here… rode the way for 50 odd rupees and out…
but it surprises me everyday :slight_smile: