Dear @phreakv6 Here’s a basic primer. It’s a good question since so many things have changed in this company over the last few years.
OSCL (now de-merged) is a speciality chemical company predominantly born out of the business of Iodine and Selenium derivatives. It is slightly different from the regular speciality chemical companies on account of the fact that although they used to, they have now reduced much of their product portfolio in the commodity cycle products that generally impact chemical companies. They have been getting more and more into 6-8 higher level processed speciality chemicals to a point that they now do not even prefer making the base first step processed iodine but buying it to save time and effort by stepping aside from the first process of creating the named speciality chemical. This will also helpful in reducing the pressure on WC as their supplier of base Iodine is not going to be able to negotiate favorable terms from them and they will get time to complete the cycle of processing, supplying and getting paid from the customers before they pay their supplier and the customers of OSCL will surely pay, on account of them being well established businesses, but they pay at their leisure.
They have also applied for 14 or 15 patents (which as we all know means that only they can manufacture the exact product) and the granting of patent is just a formality which happens with time and they start manufacturing the product as soon as they apply for the patent.
Their main edge is that they first develop a product for the customer, then they patent it and then become the only supplier for that product to the customer. Most of their customers are pharma biggies. They are now also expanding their product portfolio to many other higher margin products (which last fy showed some traction as it is now around 10% of the turnover). It is incomparable to view the old OSCL with the new emerging OSCL because of their change in business strategy and of holding many IP’s.
They also till recently had a few subsidiary companies; the main one of which was Lasa Supergenerics which has now been renamed to Lasa Laboratories. The entire company and it’s subsidiaries have gone through a merger and demerger exercise to leave them with only two separately operating entities as mentioned above.
Lasa is a company they purchased for 6 crores in 2011 and has recently done 200 crores in revenues in fy 2016-2017.
Lasa is a manufacturer of Veterinary API’s. They are growing fast and are in a business with serious tailwinds both of which are good as the tailwinds are supportive of business coming to India and also the fact that Lasa is winning the orders shows the trust of the customers towards Lasa. In one conference call the promoters indicated that they might also get into Human API’s in the future.
On the issues which have caused this to become a very debated thread is actually just 2 things which have lead to many other things happening and they are the most discussed here instead of the business 
- The promoter pledged their shares ( and did not buy a ferrari; they gave the entire money to the company as an interest free loan)
- Inefficient management of WC and did long term CAPEX with short term funds.
My thought process was; both these issues have nothing to do with the growth prospects or the profitability of the business in general and since the market has beaten it down due to sentiment and not on fundamentals I liked the business.
I am sure some will argue that WC is a fundamental issue. I sat and thought long and hard and realized that whatever their WC issues may do or not do, it will not make the company bankrupt and neither will the promoter holding of percentage a or b have any actual impact on the “actual business” which is moving along just fine. They might just not have growth for some time if they want heal the financial issues and I was fine with that and we own a good business is visible from the margins it enjoys.
They have now announced a rights issue for OSCL the details of which are still to come out but I am watching it carefully. I have some people think that they are going to remove debt with the rights issue (which they might do to a certain extent) but that does not seem to be the only reason for the rights issue. They have also clearly said that they will be using some money from the rights issue to buy some more units or something along those lines to expand the business of OSCL. Now, that is contradictory to their earlier statement very recently that they are going to use contract manufacturing for further grow instead of CAPEX. Now whether they do greenfield or brownfield, it is immaterial. They have again it seems changed their mind about no more CAPEX. I am hoping they are prudent and reduce debt by at-least 80% and leave only 20% maximum on their books and it’s fine by me if they use the rest of the cash from the rights issue for expansion.
What do I like; they have a good business going through bad times (on the surface only). The real business is fine and available at a great discount.
I try to find things where the risk of loss is lesser and not so worried about the percentage of gain. This if one is a contrarian seems like it and I reserve the right to be wrong because it’s my money
Hope this helps.
