Hi,
As per public available information after 11000 MT expansion ,total capacity of IS will be 45000 MT (34000+11000) . In the recent concalls and 2021 AR it is mentioned that , after this expansion capacity will be 47000 MT. I am attaching the screenshots of the same. Please comment -
Page 36 of Annual Report -2021
Q3 2020-21 concall -
Q4 2021-21 concall -
Hello, i have not seen much discussions on this good fundamental company since few months.
Would like to ask your views on the recent capex being done by the company, and if enough demand is there, for them to protect their operating margins.
With a current market cap of approx 1k Cr, and if OCCL compunds their book value every year @ 20% for the next 5 years, where would a logical investor asess the Market Cap after 5 years?
Please let us know for any new developments at the company operation level or if any positive/negative development in the market/region where their products are sold.
Cheers
OCCL.pdf (1.5 MB)
Latest results.
The “Equity Share Capital” was reduced from 1000.53 to 999.01. I am curious to understand what does this mean?
Commissioning of 1st phase of the expansion has happened from Dec 21, 2021. Hopefully, this should start impacting the revenue from Q4FY22 onward.
Why not take debt when its available at sub 8% … As long as money hasnt gone out of the company , shouldnt be an issue right ?
This happens when asset turnover is very low. Their asset turnover is around 1x which is too low.
hi All
Insoluble prices (IS) have been declining over the years and there seems to be an overcapacity in the industry (with no greenfield expansion viable) as a new capacity from Eastman, OCCL and China Sunsine has all come on stream in the last 5 years (have covered China Sunsine’s per ton realizations in the attached link)
On the other hand, there has been a decline in CV sales in india and also globally, which has muted IS demand (a commercial tire uses 10x IS as compared to a passenger tire).
Despite all the advantages discussed here in the prior posts (oligopolistic market, large approval time, high MS of OCCL), here are the risks that one needs to be careful of -
Despite the above risks, I think the current valuations have a reasonable reward to risk ratio.
detailed thesis can be accessed here -
Bad Set of results due to higher input costs. Profit down 50% QoQ.
More worrying sign is the demerger of the chemicals business to a subsidy with the current company becoming a holding/investment company. They also mentioned of going into commodity trading.
Can someone please explain the advantages/disadvantages of this Demerger?
I think we would receive shares of OCCL Ltd. in addition to current company shares but the total value of both company shares would remain same as before. Is this right?
How would demerger result in value-unlocking for shareholders?
My 2 cents
Disc. Was invested to long term (10% of PF since 2017), sold 50% last year due to diversion in investment business. Sold 50% yesterday morning at 780. Hence negative bias.
Hi Umang,
With the demerger announcement and the recent market fall in prices, what impact do you see on ur earlier thesis. Few observations on biz and demerger :-
Do let us know ur updated views.
Disclosure :- Not invested. Came across this only as a demerger play.
BUY Report:
Dropbox - Oriental Carbon & Chemicals (OCCL) - BUY (1 pager).pdf - Simplify your life
Disclaimer: not a recommendation.
hi Dhruv
the thesis based on which i had invested is solely on the IS business.
While i have already expanded on the business in the post above, this demerger does not change my thesis which in short is -
a. overcapacity in the industry compressing realizations for all players.
b. OCCL, with its scale, will come out stronger.
c. the industry seems to have entered a phase where no new capacity will be coming in for the next 3 years.
d. this overcapacity co incides with slump in global CV movement (refer Eastman CEO comments in my post above)
c. the recent fall in price was more on account of margin compression, which ought to reduce once pass throughs kick in.
the way i see it, many things that could wrong for OCCL, already have and are baked in the price.
uptick in CV → increase in IS prices → better cashflows.
they should not have put money in all of these exotic instruments. at this price, i can live with it (surprisingly, those investments have done well). hopefully, after the demerger, all the cap table fun will be in a diff company.
disc. - invested (5% of portfolio)
The big red flag is inability to increase market share beyond 10-12% globally since last few years. The company is looking to grow with new capacity in North America. But why have not they increased market share as they were not operating at 70% capacity(from prev quarterly concalls).
Either the existing customers has capped quantities per supplier or the nature of the product is such that beyond a certain grade, would not really improve the cost side for the customer.
This could have been the best time to gain market share in international markets where demand has been flat. Future growth can be a function of overall demand improvement rather than gain in market share.
Disc: Holding.
CFO statement from q3Fy21 concall:
“Going forward we expect our long term EBITDA margins to be in the range of 28% to 32%”
Forward to q2fy23 concall, management says EBITDA margins vary relative to sales. EBITDA margin per ton is what their focus is on. One more clarity given is the company sells by having fixed rupee over fixed costs than a % of fixed costs. so if fixed costs come down, ebitda margin as a % of sales go up.
So in 2021 concall CFO might have not factored in the sharp rise of RM & freight costs that came later.
invested higher levels
Apologies if this is a silly question. Where can I find this pricing info?
Disc: Tracking position
