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Omkar Speciality Chemicals Ltd -- OSCL

second quarter results are predictably good.

period q2 fy 13 q2 fy 12 h1 fy 13 h1 fy 12 fy 12

sales 50 39 102 82 167

NP 5.7 3.6 10.7 7.5 16

half yearly eps (not annualised) on post ipo expanded capital of 19.62 crores is 5.5 per share. debt has increased to 125 crores.

I think at cmp of around 118, much of the good results seem to be priced in so partial profit booking seems to be a prudent thing to do. Stock is in a strong uptrend so there might be some juice left but based on valuations this seems fairly priced.

http://articles.economictimes.indiatimes.com/2013-01-14/news/36331978_1_herlekar-selenium-excel-industries

The founder of Omkar speciality is an ex-IIT Bombay grad, who literally started his lab from his kitchen, and had grown to this size from an initial seed capital of 1Lac, which he got by dissolving his pf account. I simply can’t resist myself from respecting these kind of man and the companies they run.

Thinking of taking a starter position here.

Omkar speciality chemical has a nearly hidden section where they tracking research reports on them. The one that attracted me most is the one by PN Vijaya. Listing down all the reports for ease of reference

http://www.omkarchemicals.com/news%20goa/Omkar%20Final%20Report.pdf

http://www.omkarchemicals.com/cs%20pdf/Omkar-Specialty_MehtaEquities_230213.pdf

http://www.omkarchemicals.com/News_goa/Research%20Details.pdf

http://www.omkarchemicals.com/media%20coverage/OMKARSPECIALITY_FirstcallRes_271212.pdf

I was going thru the anual report of OSCL today…on of the best ARs i ve ever read…i must say…atleast it motivated me to dig deeper .

With the capacity going to get doubled this year and 14 patents (2 already got) filed, is Omkar sp. chemicals going to get re-rated?

I am looking into this company for last few quarters. What I found interesting is the jump in Operating Fixed Asset Base over the years (Consolidated) from Rs. 37 Cr. in 2012 to Rs. 268 Cr in 2015. Substantial part is being operational since last year only. Capacity on Intermediate, API and Inorganic Iodine segments have been increased substantially.

What the company does is already well covered in the HDFCSEC report cited in the thread by one member.

It seems, presently the sales and profitability figure don’t capture these ramp up in Capacity and if and when it happens, it would be interesting to watch.

Presently. 58% of sales come from Inorganic Iodine, 24% from API for Veterinary deworming segment and 18% from speciality chemical intermediaries. Sales are primarily to famed pharma companies in India and consequently the payment cycle is stretched. Omkar gradually expanded in export presence, which they feel would improve the receivable cycle going forward. Presently about 25% is exported.

Main Raw Material is Inorganic Iodine which comes from SQM, Chile (single source) but SQM is opening an warehousing facility in India which again, as per company, would reduce burden on working capital.

Other two main ingredients are Selenium And Tartaric Acid which are procured from Europe and China respectively.

They are also setting up an warehousing facility in Europe to be closer to customer and improving payment and delivery cycle.

With some patents of few molecules received and also few are in pipeline, it would be interesting to see how the margin situation improves. Iodine price has stabilized post Japan earthquake (Japan is other source of Iodine), it seems to remain stable for the coming days even though Iodine cost is mostly a passthrough item.

In India, there are two other companies in Iodine space, but possibly they are mainly into Organic Iodine. They are Calibre Chemical and Samrat Pharmachem. There are other companies which compete with different specific product categories of Omkar.

Though the product range of Iodine Derivatives of Omkar is significantly smaller compared to Sigma Aldrich (Revenue.US$ 2.7 billion, Net Income US$ 500 Million; Net Asset US$ 2.1 billion and ROCE 21%), this company has been recently sold to Merck for US$ 17 billion. Let’s see how our home grown, R&D focussed, technology based, niche pharma chemical player handles its new capacity with a “claimed to be better” product mix.

Promoters have issued warrants to themselves at Rs. 150/- and the existing share pledging by promoters are mainly to subscribe to the warrants, as per their last con call with analysts.

If anyone has total market size of Iodine Derivative product ranges, from credible sources may please share.

Disc.: Invested more than a month back

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I was tracking this earlier but got scared by the amount of pledge by Mr Harlekar

The are lot of positives with the company.
Mr. Omkar during an interview recently said that they have developed an intermediate for Ledipasvir (Heptatitis C drug developed by Gilead Sciences, this is very costly drug in US, $1125/pill)

But the present situation of company is not comfortable. Revenue is not growing. Working capital situation is not good.

The promise of future is too bright but there is nothing on offer now.

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Hi @aveekmitra I came across this presentation of SQM from June 2015

http://ir.sqm.com/files/doc_presentations/2015/SQM-CorpPres_2015_Q1_FINAL.pdf

On slide 10 they mention the global demand for Iodine and derivatives at 33,000 MT. There are some other interesting bits of information on the industry in the document as well…

I was trying to look into why sales seemed to have flat lined towards the end of the last fy. Do you have any insight into this?

Akshay

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@Aksnehru @aveekmitra I guess, its because the realizations in the iodine segment falling. Iodine prices have almost halved in the last 1 year.

thanks @rohitbalakrish_
Yes it appears so - went through some reports which point to this fact. I guess this seems to be a key risk in this particular segment of the business.
Though its good to see their growing emphasis and efforts to move on to higher margin products.

Omkar Speciality came out with decent set of results today for q1 fy 16.
One needs to look at consolidated numbers here.

Sales for q1 fy 16 improved to 90 cr from 54 cr in q1 fy 15.

Op profit for q1 fy 16 improved to 15.4 cr from 7.5 cr in q1 fy 15.

NP for q1 fy 16 improved to 8.1 cr from 4.8 cr in q1 fy 15.

EPS for q1 fy 16 improved to 4 from 2.4 in q1 fy 15.

Full year cons eps for fy 15 was 12 per share.

Company has expanded capacities and now those are bearing fruits.

@hitesh2710 Another +ve is that promoters pledging have come down to 34.72% as mentioned in result note 5c. With NP q-to-q jumping 50% and y-to-y 64%, it puts the p/e below 15 which looks attractive.

The q1fy16 and q4fy15 report has the following disclosure

I have the following question in relation to this disclosure

  1. Why the out of 1,95.603 shares acquired by Mr. P. S. Herlekar 1,10,603 not reflected in his name? Does depositories take so long to transfer shares in someone’s name?
  2. Why this disclosure has been made? What is the significance of this?

@hitesh2710

The sales increased by 70% and EBITDA margin improved by 300 basis points.

However, I am unable to fathom the depreciation policy … Q4 '15 Depreciation was Rs. 6.75 Cr whereas in Q1 16 the depreciation is only Rs. 1.82 Cr. when asset base increased from Rs. 188 Cr (Q4 14) to Rs. 268 Cr. (Q4 15)

Their working capital woes are still there as appears from the interest outgo.

Promoters pledge has reduced from 57% of their holding to 49% … It is a positive development unless the means are resorted again…

This could be due to new depreciation policy. There should be notes regarding it at end of results

Not sure about the 1st point.

On 2nd, I have seen this disclosure for past 3 quarters or so. Pledging went up in Q4 14 and has gone down again.

aveek,

If you consider y-on-y depreciation, it has increased from around 1.2 cr in q1 fy 15 to 1.8 cr in q1 fy 16.

I dont have much idea about how they divide the annual depreciation on quarterly basis, whether there is any specific ratio they follow for each quarter.

For the last 2 years, this has been the case… Q4 depreciation has been higher than the other 3 quarters.

Though I haven’t seen anything like this in any other company, but I guess they would using some formula to divide annual depreciation among quarters.

Any idea why the growth in FY15 was low? I understand the reasons for FY14 -low iodine prices etc, but am unbale to understand the reason for FY15. Their API unit is seeing stellar growth, what then is not driving the growth in topline, is it further decline in iodine prices?

Overall 2-3 things look very interesting to me - introduction of new products, reduction in client concetration, focus on exports & API business

Some other questions that I wanted to uderstand are below- would appreciate anyone’s views:

  1. What is driving their growth in API are they the only suppliers of these APIs?
  2. What is the share of exports for the company in FY15?
  3. Overall competitive scenario (domestic/international) of the company in various segments - viz Iodine, APIs & Others? I understand that they make some niche molecules and chemicals - can this be validated?
  4. Comfort on debt position and working capital- how can we get comfort on this aspect. debt levels are high given they need another 50-60 Crores of capex how will they fund it? Company also talks about QIP going forward .Their working capital hasn’t yet improved. Don’t know whats the situation in Q1, but if someone is meeting the management they can udnerstand this,
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