My NOTES on PAUSHAK LTD
Paushak
(Notes by Pragnesh shah)
(Latest updated on dec 2020)
Paushak continues to be India’s largest phosgene based specialty chemicals manufacturer while maintaining domestic
market leadership in majority of its product portfolio.
USES OF PHOSGENE DERIVATIVES
1… Agrochemical(25%)
2…Pharmaceuticals(25%)
3…Dyes(15%)
4…polycarbonates(10%)…polyurethanes , plastic manufacturing…
5…Fine chemicals(7%)
…
FUTURE GROWTH/MOAT
1…Expansion
It announced receiving ministry approval for 3x expansion on 4th August 2020.
2…moat
-Strong entry barrier(only 3 companies)
-Highly explosive
-strict govt norms
-technology
-environment permission
3…Niche product.
4…only few manufacturers
5…FY20 annual report mentions tie-up with global MNC…this marks Paushak entry into lucrative CSM space…
6…new plant,
.Your Company has developed indigenous technology for its one of the key product portfolio last year and is in process of
building a new plant, with full automation and as per global standards, which will not only result in majority of import
substitution in India but will also help your Company to tap export markets
…
CAPEX
1…2015…capacity@150 mt/month
2…2016…capacity@400mt/month
3…2020./2020](tel:320202020)
…capacity@1200 mt/mont
… Paushak is undertaking large capex of about Rs 120 crore over fiscals 2020-2022.
…Till date, Rs 25 crore of capex has been carried out, and Rs 75-80 crore is likely to be incurred in fiscal 2021, and the balance in the following year
…This will be mainly to expand existing capacities, and increasing the phosgene capacity by upto three times.
…
NEGATIVES
1…Sunstitute change
As it is highly poisonus,it may be replaced by other molecule in future
2…Moderate scale of operations:
…Despite being in existence for over four decades, the company operates on a moderate scale.
…Growth momentum has picked up in the past 18 months, driven by diversification of customer base,
…Apart from the pharmaceutical sector, the company now caters to other sectors such as agro-chemicals and performance-based materials. .
3…company benefited from china pollution disruption
=However china supply may resume which will result on cost competition
4…Rising crude affects margin
5…foreign currency fluctuation
6… Hazardeous gas handling is key risk
…company is updating technology as per global chem comp.
.
7…Change in accounting policy(2019AR)
… During the year, the Company has made changes in its Policy for receivables, payables and working
capital which resulted in lower Receivable days and higher current ratio.
8… Paushak had invested in their group companies.There is huge increase in value of their investment in last 3 to 4 years.
=Mostly it is due to restructuring of group companies
…
POSITIVES
1…Promoter…alembic group
2…Moat
A…Strong entry barrier
=Phosgene being a hazardous chemical/gas is heavily regulated. After trying for several years, Paushak received approval from the Ministry of Environment and
the Ministry of Industries for expansion of capacity from 150 tonnes per month to 400 tonnes per
month
…The other companies into this are Atul Ltd and BASF. Atul is the only other Indian company licensed to produce phosgene. This is a moat for it. Other companies can’t just jump in to compete with them.
B…Technical expertise
C…it is not possible to import phosgene. Also that it cannot be moved in containers over large distances
D…The factors that are providing hindrance in the growth of this market are the high raw material cost and huge investments required in R&D and technology.
3…Domestic leader
=Paushak is India’s largest phosgene based specialty chemicals manufacturer serving
-pharmaceutical,
-agrochemical and
-performance industries.
…The Company is domestic market leader in most of its product portfolio.
Established market position in the speciality chemicals industry:
…Paushak has an established market position, backed by its presence of over four decades in the phosgene-based intermediates segment
4…The company is one of the few players licenced to manufacture phosgene gas, which involves government restrictions.
5…Strong operating efficiency:
… Paushak’s strong operating efficiency is aided by its backward integrated operations, which have led to strong operating margin (32% in the first nine months of fiscal 2020, and 29% in fiscal 2019), and return on capital employed (RoCE; expected at 20% for fiscal 2020).
. …RoCE is expected to sustain around 18% through the capex cycle.
…Further, the working capital cycle is moderate with receivables and inventory of 86 and 66 days as on March 31, 2019, respectively.
6…CRAM business
=Paushak is also actively
exploring various opportunities, including contract manufacturing, with global customers, who are leader in their markets
and sees a good opportunity for itself while offering an “India alternative” to them.
7…Technology driven global Specialty Chemical Company”.
=.Paushak has also accelerated its efforts to improve the technology while enhancing capabilities and capacities to emerge
as “Technology driven global Specialty Chemical Company”. Paushak has been able to develop indigenous technology
for its one of the key product portfolio and would be expanding the capacity to a much larger size with “Make in India”
approach. It will not only result in import substitution in India but will also help Paushak to become a global supplier
while ensuring cost competitiveness
8…New products
…Paushak plans to invest aggresively to expand its capability, capacities and its infrastructure to accelerate the growth
of business while focusing de-risking its product portfolio, customers and markets. While Phosgene chemistry remains
core are of operation,company has started new chemistry
capabilities and services to it
capabilities and services to its customers while generating higher value addition. It will also improve the ability to handle
complex reactions and do multiple steps for the customers, especially innovators.
9…The key employee strength has been doubled in last two years with addition
of capable resources with substantial quality experience to enhance the overall operational capability of the Company.
10…Around 130 cr investment in mutual funds
11…[2018/2019]
Buy Back - They had a buy back recently in which 1700
12…RC logo(.nov 2019)
.Today, there are 55 enlightened companies having
Responsible Care (RC) logo in India, while a total of 148 companies are signatories to the
programme, pursuing implementation of Codes of management practice. Paushak has signed for the
programme in end 2018 and after lots of improvements and upgradation in a short span of time at
its manufacturing site at Panelav, Halol (around 40 kms from Vadodara), invited the auditors from
ICC in end November 2019. Paushak is proud to become the 56th company to have permission to
use Responsible Care (RC) logo
13…Backward integration
.On account of this it is backwardly integrated which helps it to cushion the impact of raw material prices.
14…improving export market potential
…Company has been able to harness export opportunity in recent times wherein its export share has increased to 21 percent of sales in last fiscal from 16 percent in FY17.
15…R&D
Company has strong R&D focus with R&D investment of the order of 2-3 percent of net sales.
…
2020 Annual Report Highlights
=It has developed many new products in last few years and
improving the yield, norms and consistency resulting in optimisation of the cost.
= Despite price softening happening in second half of the year due to improved availability from China, with internal improvements and aided by lower raw
material cost to us, we have been able to sustain our gross margins.
=Continuing our journey to build a sustainable business while benchmarking ourselves to global standards, we are
pleased to share that your Company has become 56th company in India to receive permission to use “Responsible
Care” logo (RC) from Indian Chemical Council (ICC), the nodal agency in India. You would be proud to know that your
Company has achieved this milestone within one year after committing to ICC and going through an extensive audit
from ICC which also required us to undertake substantial improvements at the site including automation & improved
infrastructure.
= Your Company is among one of the smallest companies (in terms of turnover) to receive the same
where majority of the companies having permission to use the RC logo in India are big players/MNCs. This has further
enhanced and substantiated our capabilities of running sustainable operations while handling hazardous chemicals
and generating greater value for our businesses.
=Your Company is also actively exploring various opportunities, including contract manufacturing, with global customers
and pleased to share that your Company has been able to initiate business with one of the global agro majors and
expect to develop the relation further while increasing the product & service offerings.
=We believe that “Make in India”
presents a great opportunity for us along with “India alternative” to global customers.
=Your Company has been putting substantial efforts to improve the technology while enhancing capabilities and
capacities to achieve its vision of becoming “Technology driven Global Specialty Chemical Company”. Your
Company has developed indigenous technology for its one of the key product portfolio last year and is in process of
building a new plant, with full automation and as per global standards, which will not only result in majority of import
substitution in India but will also help your Company to tap export markets.
=Your Company has also applied for expansion of its Phosgene capacity and is going through regulatory process &
expect to have approval within FY 2020-21. This will help your Company to accelerate the growth in near future where
opportunities have already been identified and we are working to scale up.
=With the sudden uncertainties brought by Covid-19 and unexpected lockdown, your Company’s sales also got
impacted at the end of year and may have continued impact next year as well.
= We have experienced competition
and pricing pressure from chinese suppliers and expect the same to increase. It is also expected that competition
will increase both, locally and internationally. Fluctuating crude prices along with exchange rate do pose a significant
business risk as well.
CHEMISTRY
…Phosgene (carbonyl dichloride) is a chemical compound with the formula COCl2. Basic production is achieved by passing purified carbon monoxide and chlorine gas through a bed of porous activated carbon, which forms the catalyst for an exothermic reaction in a cooled reactor. This forms a colorless gas that became infamous as one of the first chemical weapons. This highly toxic character means extraordinary precautions to keep phosgene contained.
…Paushak can supply conventional phosgene derivatives including chloroformates, acid chlorides, isocyanates and carbamates
…Phosgene-derived intermediates are used in manufacture of pharmaceutical active ingredients as well as specialty plastics, coatings, and agricultural protection chemicals.
…Because of safety issues, phosgene is often produced and consumed within the same plant, and extraordinary measures are made to contain it
…The great majority of phosgene is used in the production of isocyanates, the most important being toluene diisocyanate (TDI) and methylene diphenyl diisocyanate (MDI). These two isocyanates are precursors to polyurethanes. The reaction of an organic substrate with phosgene is called phosgenation.
COMPANY
…Incorporated in 1972, Paushak is managed by Mr Chirayu Amin and his family members, promoters of Alembic Pharmaceuticals Ltd (rated ‘CRISIL AA+/Stable/CRISIL A1+’)
…The company derives revenue from chloroformates, isocynates, specialty chemicals, carbonates and phosgene gas. These products have a wide range of applications across industries such as pharmaceuticals and agro-chemicals
Products
Development and manufacturing of phosgene based speciality chemicals and intermediates is Paushak’s core competencies. Manufacturing of organic intermediates like Isocyanates, Chloroformates and Carbonyl Chlorides is our expertise.
USES OF PHOSGENE DERIVATIVES
1… Agrochemical(25%)
2…Pharmaceuticals(25%)
3…Dyes(15%)
4…polycarbonates(10%)…polyurethanes , plastic manufacturing…
5…Fine chemicals(7%)
Above products are used in following
6…bedding and furniture sectors
7…Isocyanates are primarily used to produce rigid foam, flexible foam, paints & coatings, adhesives & sealants, elastomers & binders, and other applications
8…Consumer markets, including equipment and electronics, automotive and construction, in the emerging economies will present enormous opportunities for manufacturers and suppliers in the future especially the ones involved in infrastructure applications.
9…Isocyanate is extensively used in the construction, automotive, and electronics industry. The construction industry is the major user of isocyanate-based products including rigid foams, coatings, sealants and adhesives.
10… It is one of the most effective insulation materials available, thereby increasing its usage in electronic industry especially in refrigerators and freezers.
…
FINANCIALS
1…Cfo>pat
Pat… 126 cr
Cfo…90 cr
2…fcf%.of sales
2019…9.4%…10cr(capex)
2018…4.6%…5.6cr
2017…10.30%…5.5cr
2016…(-)…16cr
2015…0.3%…8.4cr
2014…9.4%…4cr
2013…3.4%…70 lkhs
2012…(-)…2cr
2011…1.1…1cr
2010…4.4%…1.2cr
3…receivables%
2019…22.53%(Accounting changed)
2018…35.84%
2017…22.53%
2016…25%
2015…29.53%
4…no days debtor
2019…85%(Accounting changed)
2018…135
2017…83
2016…97
2015…114
5…opm
2019…29%
2017…17%
2015…25%
2012…15%
2009…22%
6…de ratio…0
7…roe/roce…
2019…21/19
2017…13/12
8…invent turn ratio
2019…9
2018…10
2017…8
9… Current ratio…5.99
10…promo hold…
2014…66.80
2020…66.71
11…sallary@3.3%
2019…pat…39cr
Sallary. .1.30cr
12…RPT
…on arm length basis