Significant drop in prices in Jan
Since this is a commodity, this amount of volatility in prices are acceptable in my opinion. Future prospects still look good, numbers might also show up in coming months with capacity realisations.
Mangalam organics is undergoing structural changes. Company has incorporated two subsidiaries 1) Mangalam Speciality Chemicals Private Limited (To handle pharma side business) 2)Mangalam Pooja Stores Private Limited (To handle pious/retail business) . Both are new ventures and can add to turnover and profit (additional capacity is ready). Also most importantly, the perception of the company can be altered to specialty/retail. The numbers from these new divisions have to pick up momentum. Promoters commitment and experience plays a big role here- both of them seem to be in place. Also name change of Campure to Mangalam brands indicates the willingness of the company to launch new products and brands.
Given all these, war time uncertainty has brought up an opportunity to load up a great company at a fair price. The attacking nation is reeling under a lot of pressure from the sanctions and the business impact, now that crude oil price is in its favor - it may be ready for talks and resolution than earlier.
Uncertainty is always a friend of a focused long term investor. Fair valuation is an opportunity to accumulate, IMHO.
Disc: Invested.
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Huge slump (-96%) in Q4-2022 results . EPS only 1.47 when compared with 17.66 last quarter & 38 last year .
The major reason is -
- " Change of inventories of finished goods’ work in process and stoek-in-trade "
- Other Expenses
Can anyone help me in understanding this further - incase you have additional information .
Inventory build up and pretty high short term borrowing. Seemingly company is utilizing more capacity and not selling that much. Management has to give an explanation on why they were not able to realize the sales in this quarter itself. Looks like its not available in the notes. On the other side, if this is a one time hold up and the company is able to sell the additional production on time , things can looks really good in coming quarters.
Management owes an explanation.
Disc: invested.
It does seem like the company over estimated the demand and had to finance the inventory through short term borrowing. On the positive side GM is back above 50%.
Management doesn’t do concalls or reply to investor queries. Where are you expecting the explanation? Have they given any post result interviews?
@Pratik_Shetty They share investor presentation, but hardly divulge any insights. At least this time, they have to add this vital information. Given the history, management has been honest as far as I know, though reclusive. Keeping investors in the dark is actually a corporate governance catastrophe. I hope the promoters are up to the challenge.
Investor presentation mentions rise of input costs as the broad reason.
@Dr_Kashish rise of input costs - must be referring to the raw material prices and other expenses, but thats about the profitability part. No mention of inventory build up and the financing activity. Clearly management is not providing the full picture. To the least, they don’t want to provide it now.
Latest balance sheet does not look very good. Current Liabilities(mostly short term borrowings) is at 196cr and Current Assets(mostly stuck in inventory) is 340cr of which inventory is 244cr. If they are unable to clear this huge inventory it might be a problem.
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One more quarter of pain likely and this should see clearance in the festive season so around Q3
Anyone has got any updates from management on the short term borrowings and inventory build up?
Management will have to face investors in the AGM. They could have easily provided more details in the investor presentation itself as company does not do any results conference call. Anyway, historically management has been honest, though reclusive. Camphor price is softening , with boiling crude prices the resin division should find more customers ideally. Need to watch out for inventory and borrowings.
Disc: Invested.
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Had mailed the CS regarding the same. After a couple of reminders got a response along the lines of Please ask your questions at the AGM.
Have never attended Mangalam Organics AGM, do they answer all the questions posed by the investors?
Also, the CS of the company resigned in June, not sure if a new one has been appointed yet.
A new CS is in place - "at the Meeting of Board of Directors of the Company held today i.e. June 29, 2022, the Board has considered and approved the appointment of Ms. Shachi Sanghavi, a Member of the Institute of Company Secretaries of India holding Membership No. A65080, as a Company Secretary and Compliance Officer w.e.f. June 29, 2022 ". But that’s unlikely to change the response.
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As per the recent Crisil ratings for various facilities by MOL - Ratings reaffirmed/Stable outlook. The comments on the Debt and inventory is as follows (Looks like based on inputs given by MOL)
Crisil Notes:-
" Large working capital requirements
MOL’s operations are working capital intensive with gross current assets (GCAs) of 250 days as on March 31, 2022, with receivables and inventory of 33 days and 223 days, respectively. Inventory levels are generally high during the financial year end as the company builds inventory for the peak season of July to December. Currently the working capital requirements have increased further leading to higher dependence on debt, hence, working capital management will be a key rating sensitivity factor."
So going forward, an investor should expect an elevated (may come down, however above historical averages) working capital requirement with recent capacity expansion and FY end higher inventory to supply for festival season starting July. If sales pick up to justify the cost, company will be in comfortable position.
Disc: invested.
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296a2d4e-ac10-4b2e-b522-fd75d060c871 (1).pdf (5.6 MB)
Result out for the quarter. Net loss of Rs 6.89 Cr. EPS (8.05).
Gross margin well in the negative- clearly there was high cost inventory accumulated. Not sure how much of it is still in the books.
There are too many unknows here which can’t be verified.
Disc- Invested. Looking to completely exit
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Topline grew YoY but reduced QoQ. However the major dent that led to loss is the raw material cost that more than doubled compared to previous qtrs.
Disc: Holding with avg price of 325.
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** RIP RJ 
**
Clearly company and industry are going through testing times with very volatile raw material prices. So the story of Mangalam depends on how the company weathers this storm. Definitely positives for the company will take longer to play out. Prolonged wait time would be hard testing for any investor who decides to stay. Near term volatility may be an opportunity, however more data is needed to assert that.
Disc: Invested
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Luckily (or unluckily only time will tell) my manager was on leave and I could not pre clear the trade- so I still have Mangalam in my portfolio. I went through this thread (excellent digging done by the likes of @Pranshinv and @phreakv6) and FY22-AR again to list down the positives and the negatives. I was hoping this exercise would outweigh one over another and help me pull the trigger.
Noting down my observation:
• 80% of the revenue comes from terpene operations of which 80% is contributed by camphor. So 64% of the total revenues for the company is from B2B Camphor ( B2C camphor is separately categorized under retail)
• From FY 21 to FY 22, the revenue grew by 45% but the PAT decreased by 35%. Q1 FY23 result is even worse(If you look at some of the posts on this thread around 2018-2019 there seems to be a belief that company can easily pass on increase in RM cost. That myth has convincingly been busted this year)
• The Forex outgo for the year was Rs 340 Cr while the COGS addition was worth Rs 401.9 Cr- almost all of the RM is imported. The company has never commented on what the raw material is but it most probably is Gum turpentine.
I tried to find correlation between Gum turpentine and camphor prices. Below is the long term chart of gum turpentine price i found online and the WPI chart of Camphor
Gum Turpentine price chart
Camphor WPI chart
Recent trend of Gum turpentine prices
Source of gum turpentine charts:Gum Turpentine | Prinova
○ As expected Gum Turpentine prices and Camphor prices have historically always moved in tandem. However, last few quarter results suggests there might currently be a dissociation. Gum turpentine prices hasn’t fallen at the pace at which camphor prices are falling. Company can also have a lot of high cost inventory which has taken the COGS up (Question for the Management at the AGM)
○ Whatever report I could find on the internet, all seem to suggest Gum Turpentine prices will continue going up for the foreseeable future because of its varied uses
○ The global camphor market is actually a fraction of the global gum turpentine market- Camphor prices won’t pull up gum turpentine prices as is the case with most commodities and its RM. It most probably will be the other way round- Camphor prices will have to be adjusted according to gum turpentine prices.
Management Remuneration- This has been discussed in the past, but I think promoter family is not being ethical here. Not only do the two directors draw Rs 3 crore each, 33 year old Akshay Dudojwala ( no meaningful experience in any other firm) draws Rs 3.6 crore as the Chief Strategy Officer. In all, these three account for Rs 9.6 Cr salary expenses which is 1/3rd of the total employee expenses, way too much for a Rs 500 Cr Mcap firm. To get a sense of how significant it is, I reduced their total salary by 50% which resulted in an increase in the pretax profits by around 10% for FY 22. For the sake of comparison, find below Kanchi Kapooram’s top renumerations.
Market Opportunity- The Company claims to be the largest manufacturer of Camphor in the world. That got me thinking how big can the camphor market be if a Rs 500 Cr Mcap company is the largest manufacturer. With some more help from Mr. Google, I found this- The global Synthetic camphor market size was $367.0million (Rs 2929 Cr) in 2019 and is projected to reach $448.1 million by 2027. Synthetic Camphor Market: Global Industry Analysis, Size and Forecast, 2018 to 2028 (futuremarketinsights.com)
This makes Mangalam have around 18% market share in the global synthetic camphor market,this was before Mangalam Organics doubled its capacity.Now with both Kanchi and Mangalam having more than doubled its capacity, there can bedownward pressure on the Camphor prices due to excess supply.
Some accounting worries: Other current asset has gone up significantly. Balance with Revenue authorities up from Rs 3.3 Cr to Rs. 14.35 Cr. I am no expert here, so not sure if this is normal. My worry is if there is some disputed claim that they have shown as Balance with revenue authorities.
What is this Rs 10 Cr Security Deposit. If possible someone should get this clarified by the Management
Now to the good bits…
Expansion plans : @Pranshinv had shared MPCB order in one of his posts. I have assumed this to be the new production break-up.
In the table below, the highlighted portion is the data from MPCB order, based on which I came up with some estimates of revenue
To estimate the price/kg of camphor I looked up for the wholesale price (Rs 600-800/ kg). I assumed Mangalam’s selling price will be lower to the wholesale selling price. To ensure that I am not way off mark, I used the Sep-18 Quarter revenue to deduce the final realisation as that quarter’s WPI range is closest to the current WPI value of 210
Sodium Acetate prices in the wholesale market is around 20/kg
For resin Chemistry products I again checked the wholesale prices of products mentioned in the MPCB order. All the products are around the same range of 80-120/ Kg. I have assumed a selling price of 85 for Mangalam.
Terpene derivatives is what should get Mangalam Organics investors excited. Management has mentioned about Isobonyl Acetate as being the next growth area in the FY22 AR. (Some orders are in the final stages of approval). I have assumed an avg selling price of Rs 700/ Kg for terpene derivatives. There is no valid reason why it can’t be Rs 1000/Kg or even more. It all depends on what product Mangalam can produce off these derivatives and at what rate. I have assumed 75% utilization level for all calculations.
MPCB order 11.11.2020.pdf (3.7 MB)
From these calculations, the estimated annual revenue on the expanded capacity is Rs 1548 Cr (whenever it comes fully onstream). This is 3X the current annual revenue
These estimates will make sense only if the MPCB order accurately reflects the expanded capacity and product mix. Management’s confirmation is required on this.
Few words on B2C: B2C currently accounts for 16% of the total revenue. Akshay Dudojwala on his Linkedin Bio says that he is spearheading the B2C operations and is targeting to take the B2C revenue share to 50%. There is no timeline mentioned for the same. I did not find any evidence to suggest that B2C is making money at EBIT level. Management should guide for operating margin from B2C
I am not very sure if all of the camphor sale for Pious use is accounted in the B2C sales? Till now I was under the impression that pious use is the main contributor to camphor sales but that can’t be true if all of pious use sales are accounted for in the B2C revenues. Who are the B2B camphor customers and what are they buying for?- Requires Management’s confirmation
Hopefully the management clears few of these ambiguities at this year’s AGM
Disclosure: Currently 2.5% of my portfolio
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