Thanks @raghav1836 for initiating this thread and capturing the business essence. I am adding a few of my observations.
A bit of history
Company was founded by S.D. Shroff in association with Excel Industries Ltd and Punjab State Industrial Development Corporation (PSIDC). Currently, Shalil Shroff (son of S.D. Shroff) is Managing Director. They recently appointed a professional CEO Vinod Kumar Gupta who is B.tech in Chemical Engineering from IIT Mumbai and Post Graduate from IIM Ahmedabad with 29 years work experience and 23 years in Operations. Also, they hired a new CFO (Dr. S. Sriram) who has a PhD in supply chain management with 33 years of total work experience and 15 years in UPL.
This is the case of a turnaround company which went into losses due to a debt funded global acquisition spree that the company undertook in 2003-08. The acquisitions were done with the aim to move up the value chain by buying out global agchem companies which had registrations in developed countries. Then the 2008 market collapse happened which meant company couldnt raise equity from the market and had to default on their debt obligations. Additionally, they had losses in derivative contracts in 2009 and fires in one of their factory units.
CRAMS
To get out of the financial mess, they delved into contract manufacturing products for MNCs, their first contract was with Kureha and currently they work with very large innovator MNCs (Kureha, Adama, Corteva, Nippon Kayaku, UPL) in agrochemicals. The business is structured through long term contracts (5-year) on a cost plus basis, where registration lies in the name of innovators and AIs are supplied by Punjab Chemicals. A unique feature with this company is their customers part finance (~50%) capex requirements.
A brief of their past 5-year financials
| In cr. | FY17 | FY18 | FY19 | FY20 | FY21 |
|---|---|---|---|---|---|
| Revenues | 535.90 | 495.92 | 642.90 | 549.60 | 678.20 |
| Exports | 355.40 | 296.30 | 411.10 | 343.10 | 422.60 |
| Domestic | 180.50 | 199.60 | 231.80 | 206.50 | 255.60 |
| Gross margins | 40.83% | 40.27% | |||
| EBITDA margins | 2.78% | 8.39% | 10.33% | 7.71% | 14.08% |
| PAT margins | -3.71% | 3.47% | 2.61% | 1.97% | 7.24% |
Punjab Chemicals have scaled their export business (i.e. AI supplies to agchem innovators) very well. Their current quarterly export runrate is ~130 cr. (annualized sales of 500 cr.+). The quarterly domestic runrate is 100-120 cr. (annualized 400-500 cr.). Management is confident of reaching 1400-1500 cr. sales by FY24.
Interestingly, company makes healthy gross margins of ~40%, which is higher than generic peers like Insecticides India (30% gross margins). In the last few years, EBITDA margins have scaled well and are now closer to industry benchmark of 17-20%. There is still scope for margin expansion, additionally the export CSM business provides higher realizations. So once they are able to get to 1500 cr. sales, their EBITDA margins should go towards 17-20%. We already saw this happening in Q1FY22 which had EBITDA margins of 17%, since then margins have deteriorated due to increase in basic raw material prices (felt by players across industry).
Other useful data points to keep track of
Top 5 customer concentration
- FY18: 68%
- FY19: 73%
- FY20: 65%
- FY21: 75%
Revenue from metamitron and metconazole
- FY18: 43%
- FY19: 45%
- FY20: 40%
Revenue from UPL
- FY18: 50%
- FY19: 50%
Raw material: Hydrazine Hydrate (produced from nitrogen and hydrogen gases), Aluminium Chloride Anhydrous, 2-Chloro Nicotinic Acid, Ethyl Acetate, Benzene, Denatured Spirit
Raw material imports: 25-30% (2020), 30-35% (2021)
Long-term contract with the suppliers for key raw materials (Metamitron and Hydrazine Hydrate) imported from Europe, China and Japan
Environmental compliance
- Zero liquid discharge facility + in-house incineration facility for organic waste
- REACH compliant for select performance chemicals
I will keep adding more points as I finish reading their concall transcripts.
Disclosure: Not invested