Adding a data point here which may be helpful - Arjun Kothari is Mukesh Ambani’s nephew[1]. I don’t mean this to negate the fact that he is an amazing businessmen in his own right. Just something that other investors should know I feel.
PS: I am a long term investor in Kothari petrochemicals.
I think that’s a very important datapoint @padiyar83. Makes so much sense now how come Reliance is not arm-twisting them to dominate the PiB industry if margins were so attractive
Thanks for the info @padiyar83 , I think your reply answers point raised by @ankurgupta .
Also sharing an image above that might help to see: Arjun Kothari’s network better.
A lag correlation model between Brent Crude prices and Kothari’s stock could indicate that a 5% increase in crude oil prices leads to a 2-3% decline in Kothari’s stock price after a lag of, say, 15 trading days. This would help set up hedging strategies and time entry/exit points into the stock.
Stock Return=α+β1(Brent Crude)+β2(INR/USD Exchange Rate)+β3(Global PIB Demand)+ϵ
Where:
Eg. The model could detect that a combination of falling oil prices and a weaker Rupee has historically been associated with positive price movements in Kothari Petrochemicals within the following 30 days. This insight could then inform a buy recommendation when these conditions are met in real-time.
Calculating historical volatility using metrics like:
Example Calculation**: If Kothari’s historical volatility is 20%, and we estimate that a 1 standard deviation move (based on recent oil price spikes) could result in a 5% stock price drop, the model would reduce exposure in times of heightened market stress.
Analyze minute-by-minute price movements of Kothari relative to peers like ExxonMobil and BASF (other large PIB producers) to identify statistical arbitrage opportunities
The dependent variable (Y) would be the stock return for Kothari Petrochemicals (percentage change in stock price), and the independent variables (X) would include:
The multi-factor regression equation would look like this:
Y= α + β1X1 + β2X2 + β3X3 + ϵ
Where:
For this example, let’s assume that we have weekly price data for Kothari for June 2024, which ranges between ₹135 to ₹142 over the four weeks:
The weekly returns would be calculated as:
Week 1 to Week 2: 2.22%
Week 2 to Week 3: 1.45%
Week 3 to Week 4: 1.42%
We now run the regression using the historical price data and the independent factors (Brent crude and exchange rates) to estimate the coefficients ( β1,β2,β3 )
Assume after running the regression, the results yield the following:
Y = 0.015 + 0.35X1 − 0.40X2 + 0.10X3Y
So,
Using this regression model, we can now input future estimates of Brent crude prices and INR/USD exchange rates to predict Kothari’s future returns. For instance, if Brent crude is expected to rise by 5%, and the Rupee is projected to strengthen by 2%, we predict:
We can also try
Calculate VaR to understand the downside risk Kothari might face over a given period based on its historical volatility.
Assume Kothari’s stock has a standard deviation (σ) of 2.5% over the past 90 trading days (which could be calculated from daily returns).
We calculate VaR at the 95% confidence level for one day:
This means there is a 5% probability that Kothari’s stock could drop more than 3.61% in a single trading day.
If Kothari’s stock is currently trading at ₹142, a 3.61% decline would result in a potential drop of:
142 × 0.0361 = ₹5.13
Thus, Kothari’s stock could fall to ₹136.87 under this scenario.
Another model we can try,
ARIMA (AutoRegressive Integrated Moving Average) model:
Another method,
Kothari Petrochemicals is sensitive to oil price movements due to its reliance on isobutylene, which is derived from crude oil. Let’s calculate sensitivity between oil prices and gross margins.
Assume Kothari’s gross margin is 28.4% (as per June 2024 data). If oil prices rise from $85 to $95 per barrel, we expect input costs to increase, reducing Kothari’s gross margin. By applying a cost-sensitivity ratio, we can predict the impact on margins.
If Brent crude rises to $95 per barrel:
Thus, if oil prices rise to $95, Kothari’s gross margin could shrink to 26.6%. By simulating oil price changes over time using Monte Carlo simulations, we can develop probabilistic forecasts for Kothari’s margins.
Some of this is based on work of Jim Simons ( Renaissance Technologies ).
I leave up to other experienced members of this forum to try to look into this, and provide more insights. If any one know any one with expertise in this, then please tag them here.
Thanks
Someone can correct me if there is any reference in research or even management commentary about it? having said its a kind of commodity which is used by several industries as raw material. Having said this, I did not see, why they have not yet explored their quick neighborhood Middle East- Saudi Arabia etc, where the Raw material i.e. C4 derivative ( Olefins and Polyolefins) based raw materials available as first mover advantage abundant due to low prices. Global demand or growth @4.5% and 2025 is indicated at 711 KMT as per my reading from one insight. 80000 MTPA facility to soon add up in KSA from Aramco/Daelim for PIB (Amiral project) already started and to be online within a year or two. This is again not a trade secrete chemistry. Many petchem manufacturers who depends on Natural gas, Naptha etc sell several such commodity chemicals by trade/import and resell in India. For name sake list as producer, but major turn over comes from traded products to meet demand of its customers. Any rules like antidumping duty or changes in freight costs severely affect their margins. I afraid if they have missed the train or not interested in investments and shall change their model as Manufacturing + Trade in near future? It will be interesting to see how many long term contracts they have with eg Lubrizol etc? ( Specially 2T oil market and others)These clients can cease to buy or may not renew LTSA once they start getting cheap PIB from abroad. Ultimately Kotharis have to see how much they can optimise and cut on cost of production and become efficient ahead of disruption..? I had been consulting to few since past in other such cooperations and technology agreements , where I wonder why not they explore to invest in Middle east as Recipe master thereby enter into Global sales agreements? I shall read more or get some more details. Thanks for this thread indeed.
The company seems to be picking all the unrelated businesses e.g. Fertilizer to restaurants, drones, shoes job works and now the mineral extractions. The new management seems to be in a lot of hurry. Please correct me if I am wrong.
Dicl : invested in a minusical position and tracking.
For the long term raw material procurement should not be a problem, because they procure 70% from reliance industries. Nina Kothari is sister of Mukesh Ambani, so considering the relation they have, as an investor I can only think of how Kothari petrochemicals might be able to leverage it.
That is kothari industrial & not kothari petrochemicals..completely unrelated companies.
I Hope you didn’t invest in the co. (Even though miniscule) Based on research work of kothari industrial corporation or vice versa.
can you clarify which firm has a relative with Ambanis? I’m unable to parse what you wrote.
I am sorry, I had posted on a wrong thread which I was unable to move forward to the right thread.
Kothari Petro - Arjun Kothari’s uncle is Mukesh Ambani.
Hi everyone,
Does anyone have notes from the recent Kothari Petrochemicals AGM or any updates from the management about future capex plans ?
I noticed that their fixed assets increased from ₹130 Cr to ₹211 Cr — quite a big jump.
Just wanted to check if the management has shared any details about what this investment is for — any new capacity, product line, or expansion?
Thanks
M.D
