Mangalam Organics Ltd. - A promising Pine chemistry story

eyesice · June 15, 2020, 11:01am

Your thesis still makes sense to me. However, I was looking at the 2019 AR and found that the raw material “Turpentine” is procured from across the globe: Brazil, Argentina, Chile, USA, Russia, Indonesia, Vietnam, China, Portugal, and Spain, among other countries.

In that case, how does an increase in Gum Turpentine (which is RM) prices over the past 2 - 3 years result in an increase in the bottom line? What is the actual thesis behind the investment if GT is imported and not produced locally?

I understand that since Gum Rosin is no longer favourable in China, there would be no dumping of camphor in India and of course in the RoW. But Can someone explain the reason for the increase in OPM for the last 3 years if GM is imported?

Source : https://www.bseindia.com/bseplus/annualreport/514418/5144180319.pdf

eyesice · June 16, 2020, 10:06am

Thanks to @phreakv6’s Phreakonomics, I downloaded the Import (GTO) v/s Export (Camphor) data from the website to understand how the output price varies w.r.t the input.

It’s clear that GTO & Camphor prices go hand in hand. In fact prices of GTO for the past 5 months are very similar to early 2017 prices. However, it seems that camphor prices are staying a bit high than in 2017 - maybe due to a lag it carries w.r.t GTO prices.

Here is a graph of the ratio of Camphor/GTO over the last 3 years.

The prices of Camphor reached upto 6 times the price of GTO during 2017, but then dropped off toward the mean. The mean Camphor to GTO prices is equal to 3.49 and the ratio for Feb 2020 is 3.67.

I wanted to specifically understand whether the increase in bottom line is due to the high Camphor/GTO ratios from 2017 to mid 2019. Therefore I looked at the OPMs of MOL v/s Kanchi.

It seems that Kanchi enjoyed a much higher OPM from early 2017 to mid 2018 during which the Camphor/GTO prices were the highest. Kanchi’s OPM levels have dropped since then and now both MOL & Kanchi’s OPMs seem to go hand in hand.

Both the companies going for Capex makes sense because this seems to be purely a volume game (because China is no longer dumping) since the prices of GTO has gone up over the years, it could indeed be a structural change in the industry.

Disc: Invested in Mangalam

eyesice · June 30, 2020, 10:03am

Q4 Results Out. Marginal increase in Revenue YoY. However, Cash flow shows that Mangalam had in fact cleared out much of its inventories and receivables which is a good sign.

CFO ending Mar 2020 is 93.33 cr v/s 29 cr in Mar 2019.

rushabhshah · June 30, 2020, 11:49am

also there is significant increase in plant and machinery in balance sheet .

Pranshinv · June 30, 2020, 12:08pm

Mr .Damani Presence will surely increase Corporate Governance.
This can be reflected as company has shared Investor Presentation first time ever…Investor Presentation March 2020.pdf (671.1 KB)

Pranshinv · June 30, 2020, 12:15pm

It is due to Capacity expansion done by the company by more than 200% recently.

Naman_Gupta · July 2, 2020, 3:38am

Disc : Invested. Long Term

I have been monitoring this stock closely, since last few years. Here is my opinion.

I have seen and participated in multiple buybacks, but the rigor by management was astonishing. I received more that 10 calls as reminder to surrender my share in buyback scheme. Indeed promoters were quite interested to increase the shareholding %.
However, the response from buyback was not as expected, hence the management went ahead to purchase the shares from open market.

Now coming to financials, the balance sheet has become too strong over last year.

a) 100% increase in Property, Plant & Equipment, with 65% reduction in Debt. (17.41 Cr in 2020 from 49.59 Cr in 2019)

b) 10 Cr payment to tax authorities, as full and final settlement. Profitability and cash from operations to further boost up next year.

c) Further repayment of Loans to reduce the interest cost of ~0.84 Cr.

With my limited understanding, I feel a target of Rs 600 is achievable, with potential of Rs 1000 in near future.

Feel free to add your views.

RajeevJ · July 2, 2020, 4:10pm

Mangalam came out with pretty decent Q4 numbers. More importantly, the numbers auger well going forward. Margins are back to normal. Q3 was impacted due to raw material inventory, mainly turpentine oil, acquired at higher prices, since cleared. This also finds mention in the Co.'s investor presentation.

So the Co. should be able to sustain Q4 margins & with the recent capacity expansion going on stream after getting all clearances, the Co. should increase volumes at higher margins. Material cost was down to 43.85% of sales in Q4 from 58.23% in Q3. The balance sheet de-leveraging will further improve ratios & add to the flavour!

Besides, Mr. Radhakishan Damani buying into the Co. is will become known at large only after June ending share holding is posted on the exchange by the Co. That would give a lot of confidence to investors.

eyesice · July 14, 2020, 4:28pm

Monthly chart of Mangalam Organics shows that Stock has reached a key resistance of 400. Previously it has failed twice in the past year. Let’s see if it can fly this time around!

krish240574 · July 18, 2020, 10:26am

Hello fellow ValuePickrs,
Thanks very much for the exhaustive discussion about this company, very enlightening and useful.
I’m looking at the following questions:

What will drive global demand for camphor(and consequently, Mangalam’s growth) in the future?
Pharma and healthcare products, that want to shun all-chemical ingredients would utilise camphor heavily. A link that speaks a little about the same - https://www.futuremarketinsights.com/reports/camphor-market
What will drive local demand?
My understanding is that local demand will remain pretty much steady, given that local camphor production and marketing is fragmented with quite a few major players in the organised segment. I also see quite a bit of competition from the local unorganised segment, for camphor manufacturing.
How is the company poised to run the distance?
Given that the market is quite competitive for this commodity product, the fight boils down to price differentiation and novel product innovations and introductions. Another factor that would ensure price compounding of the stock and growth is maintaining and slowly growing market share of the product. Given that the entry barrier is low, since camphor is not a niche product, this could become a tooth-and-nail fight, IMHO.
How will supply-side economics affect profitability? - Again, raw material costs, primarily GTO et al here, would affect the share of the pie each competitor achieves, Y-o-Y.

I’m digging in the annual reports and on the web, to try and answer the above questions in detail. I just wanted to put these out, so one has a “roadmap”, mentally, for how the future might look.
Cheers,
Kumar

krish240574 · July 18, 2020, 1:49pm

Here is an interesting report about the pine chemical industry, its outlook for the next 5-6 years:
https://www.gminsights.com/industry-analysis/pine-derived-chemicals-market
The points relevant to Mangalam from the summary are :
Increasing application scope in adhesives & sealants industry should drive pine derived chemicals market size. Global adhesives and sealant market is likely to reach over USD 60 billion by 2024, and may register gains at over 5%. Gum rosin, produced from oleoresin of trees are used to enhance adhesives viscosity, plasticity and strength. Gum based adhesives are used for hot melt applications which promotes adhesion of hot melt adhesives for flooring, and packaging products.
Mangalam does manufacture Rosins, mentioned here -
http://www.mangalamorganics.com/resin.php (scroll down to the bottom of the page)

I’m trying to understand which product will drive growth and domination for Mangalam in the years ahead(at least 5-7)- from the list it has provided - http://www.mangalamorganics.com/ (scroll to the bottom)

Camphene - Global Camphene Market Growth 2019-2024 - Fior Markets . Some salient points from this report summary -

Flavor & fragrance is the largest application of camphene, taking 58.15% of the world camphene consumption in 2015
The level of concentration of the camphene industry is relatively high. Manufacturers mainly distribute over China and India
It is expected that the camphene consumption will be 15275 MT in 2022 and the sales revenue will reach 38.25 million USD.
Over the next five years the Camphene market will register a 4.9% CAGR in terms of revenue, the global market size will reach US$ 40 million by 2024, from US$ 30 million in 2019.

Terpene phenolic resin - primary demand is in the transportation industry, for rubber tyres. Other industry that uses this resin is the printing industry, where they manufacture eco-friendly inks. Report summary of phenolic resin demand and market outlook - Phenolic Resins Market Size, Share and industry Statistics - 2028

Another research report on phenolic resins - The global phenolic resins market size was valued at USD 11.17 billion in 2018 and is expected to expand at a CAGR of 5.3% over the forecast period, 2019 to 2025. In the transportation sector, there is a rise in demand for rubber and friction materials and has generated interest in durable phenolic compounds and lightweight, which is driving the growth.

The same applies to Alkyl phenolic resin, another phenol derivative. (Please correct me if I’m inaccurate here, I’m not a chem. major)

Dipentene - Dipentene Market size is forecast to exceed USD 1.9 billion by 2024; according to a new research report by Global Market Insights.

Dipentene is widely used in food & beverage industry as flavor and additive. Food grade dipentene is a biodegradable solvent which has a pleasant orange aroma and used as a flavor and fragrance additive in food products and bottled beverages. Limonene is generally recognized as safe (GRAS) to be used as a flavoring agent and is usually found in food items such as soft drinks, fruit juices, pudding, ice cream and baked goods.

I’ll add more stuff about their other products too.

In addition, I believe a market-share analysis of each product will also add a lot of value. Let me get digging.

Cheers,
Kumar

Pranshinv · July 19, 2020, 6:25am

Official Announcement of SH Pattern as on 30th June 2020

krish240574 · July 19, 2020, 9:25am

A thought I had - In the AR of 2018-19, I see a paragraph on page 39, as follows:
Pine chemicals is a family of renewable, naturally
occurring materials derived from the pine tree (genus
Pinus). These chemicals are derived through the
distillation of oleoresin or carbonization of wood. A
majority of distilled products are made from gum,
stumps, logs, and sulfate pulp byproducts. The global
pine-derived chemicals market was valued at US$
5,170.1 million in 2017 and is anticipated to expand
at a CAGR of 4.3% from 2018 to 2026, according to a
research report titled ‘Pine-derived Chemicals Market:
Global Industry Analysis, Size, Share, Growth, Trends,
and Forecast, 2018–2026,’ published by Transparency
Market Research (TMR). Increase in demand for pinederived chemicals in the construction sector is projected
to augment the global pine-derived chemicals market
during the forecast period.

How much of the above is camphor? If so, what segment of the camphor market? Retail(the kind used in India, for religious ceremonies) or pharma, or oral ingestion, or skin care?

From an earlier link I posted(https://www.futuremarketinsights.com/reports/camphor-market), here is a para:
The global market for camphor is highly characterised with its association with a wide range of end-use industries. However, the pharmaceuticals industry is expected to account for a significant share in the increasing global demand for camphor. Especially in cough-related remedial products, such as vapour rub and ointments, camphor has witnessed complete acceptance from the healthcare and pharmaceuticals industry.

Furthermore, the pharmaceuticals industry is also accepting camphor oil as an integral ingredient in natural skincare products, as camphor oil can be positively used in the treatment of various skin-related infections. Its use in muscle relaxant ointments is also opening a new window of opportunities for stakeholders in the camphor market. In the coming years, leading players are likely to focus on expanding the target audience in a vast range of industries, and capitalize on the growing acceptance for camphor in most of the pharmaceutical and healthcare industries across the world.

Questions:

How much of Mangalam’s camphor will cater to this segment?
What market share do they command in this segment?

All total, I see the camphor and phenolic resins markets as potential growth runways for the company, for two reasons:

Camphor, because of the expected growth in demand in India, not sure about the global pharma segment feeding growth for Mangalam, as I’m not clear if they even cater to it
Phenolic resins, given that the market is large enough and growing at a decent rate.
As an aside, the dipentine market would fuel growth, if the paint industry starts using Mangalam’s dipentine heavily, giving them a dominant market share. That would require the construction industry to boom, therefore the paint industry, and so forth.

More to come…

Kumar

Pranshinv · July 19, 2020, 12:02pm

Supply Side of Raw Material
Mangalam imports more of Aplha Pinene from Brazil and Indonesia as these countries have good production other than China. Report attached herewith will give detail brief(pg No.5).Pine Chemicals Demand.pdf (1.1 MB)

Process of Manufacturing Camphor by Mangalam in detailed manner.Process of Manufacturing Camphor.pdf (4.3 MB)

Listed Players in Manufacturing Camphor

Mangalam Organics Limited

Mangalam produce 550MT/month along with other turpintene and Rosins since May 2020
They Import Alpha Pinene 433 MT/month and Gum Turpentine Oil 250 MT/month against 550 MT
They enjoys better margins in Camphor becz of its B2C presence
They also enjoys better margins in Rosins and Turpentine products as many products are interlinked to Camphor or its Raw Materials.

Kanchi Karpooram Limited

Kanchi will able to produce camphor 550MT/month and its intermediate products by December 2020
As per Annual Report 2019 ,they import Gum Turpentine in higher proportion as compared to Alpha pinene.

At present, Mangalam will only able to fulfill Camphor and its intermediate product demand as there is no other major listed player in India who can produce Camphor to that extent .
Its B2C presence and Rosins products will play a very critical role to give better margins.

Increase in Camphor Prices since last 3-6 months is an alarming signal that there is a demand for the Product.

Bhavik · July 19, 2020, 12:39pm

Is it mandatory for companies to share this data if asked ?

krish240574 · July 19, 2020, 3:58pm

Thanks, Sanket. Again, my question:

So then, is the camphor battle in the years to come, going to be a price war? Who or which company has a competitive edge?
Pharma is the evergreen demand-driver - from reading up, Mangalam doesn’t seem to be catering to that slice of pie. By this, I mean demand for pharma-grade camphor for pain-relieving sprays, rubs, and other medications. North America is a big market for such camphor.
What will give each competitor an edge? Margins? (which again boils down to price) - then again, how strong is a price edge, unless you are a low-cost producer, consistently and sustainably.

From your reply, I gather that Mangalam will win based on price, because it is a preferred buyer and major producer. Will the demand from the Indian market(for pooja camphor and camphor cones) keep the company’s growth sustained for it to become a consistent compounder?

Just my 2 pence,
Cheers,
Kumar

Ashwini_Chopra · July 19, 2020, 3:59pm

I think out of all of Mr. Radhakishan Damani’s stocks, this one is the most attractive in terms of valuations, with a trailing PE of about 7.

Pranshinv · July 20, 2020, 4:32pm

Competitive Edge

Camphor being an commodity and like any other commodity, Pricing will be key factor.

Mangalam has an Competitive edge as they entered into Resin Segment in which they have capacity of approx 2850 MT/month which is 68% of total capacity. Approximately in value terms it should be 40% from Resins and rest from Turpentine (i.e.Camphor) . Diversification into new products which are co related to its existing product lines will add value to Mangalam in terms of profitability and scalability.

Kanchi expansion plan is purely into Turpentine Products i.e Camphor ,Camphene,Sodium, etc. Camphene is an intermediate product of Camphor and infact many companies use Camphene as raw material for manufacturing Camphor.

Pharma Industry

Synethic Grade Camphor acts as Active Pharma integredient (API) for Topical Pain Relief pharma segment. Usage of Camphor in Tiger Balm https://www.verywellhealth.com/what-is-tiger-balm-2552293 .

Topical Pain Relief Segment https://www.alliedmarketresearch.com/topical-pain-relief-market

Mangalam has come with Investor Presentation for March 2020 first time ever which clearly states that they has Turpentine client (Camphor) such as Amrutanjan, Dabur,Emami and Himalaya.

Product Portfolio of Mangalam Clients:

Emami - Zandu Balm,Menthol Oil Balm and many more where karpoor (Camphor) is used as raw material (API) http://www.emamiltd.in/brands/75/170/mentho-plus-balm.php

Amrutanjan - Camphor has been used by Amrutanjan in large quanity as they are speacialied in Pain and Congestion Mangament since 1893 https://www.amrutanjan.com/headache-aromatic-balm-massage.html

Himalaya - Have a very good presence in Wellness Industry https://himalayawellness.in/products/pain-balmstrong#:~:text=How%20Himalaya%20Pain%20Balm%20Works,reliever%20that%20remedies%20pain%20naturally.

Dabur - FMCG Company which has lots of products in his basket where mangalam is serving.

Having such Giant Players in your Pharma bucket is surely an indication that Mangalam has already established his footprint in Synethetic Camphor Market .

Mangalam has Retail Clients – D Mart, Reliance Retail, Spencers and Amazon and Synthetic resin Operations client such as – Pidilite, Henkel, Bostik and H.B. Fuller.

Retail presence, Resin expansion, Big Investor Presence and leader in Camphor industry will surely have an competitive edge to Managalam as compared to other players.

I firmly believe that any stock to become compounder , Stories with Numbers are equally important.

Eagerly watching that Stories/Thesis are converting into Numbers…

krish240574 · July 21, 2020, 6:34am

Brilliant, Sanket, this makes me sit up and take notice. This is a great analysis, thanks a lot !

Any numbers on the Alkyl and Turpene phenolic resins, about their demand and clientele?

Also, I can’t find the investor presentation you mentioned, could you please point me to it?
Thanks,
Kumar

Pranshinv · July 21, 2020, 6:59am

Investor Presentation is already on thread. Attached again for ready reference.Investor Presentation March 2020.pdf (671.1 KB)