Shree Hari Chemicals - Get 18cr Cash & Business for free

Dear ValuePickrs,

This is my first post + 3 months investing experience - so may not b able to answer your queries (but will try as much as possible)

First of all humble gratitude to Prof. Sanjay Bakshi - who has taught so many students (actively or through his blog). Got interested in equity investment after reading his post on - Seven Intelligent Fanatics From India.

Shree Hari Chemicals
Listed in 1992 by ex-Birla guy (K.LRamuka - no public info about Ramuka)
Market Cap - 36cr
Cash in Hand - 35.5 cr
No debt (short term or long term)
Total Shares - 44 lakhs
Promoter Holding ~ 48% (promoters were buying from open market few months back)
Public Holding ~ 52%

get a loan of 18cr become majority share holder and get access to 35cr cash + business :smile:
repay back your loan of 18cr with 35cr cash (net net - u will get access to 18cr + business for free :wink: - I am aware this is unlikely to happen - just thinking aloud)

About Product
Manufactures - H-Acid (80% contribution to revenues) - used as an intermediary product in Dye-Chem industry - commodity product - exported to multiple countries

Competition - China / Local Manufacturers

Pricing - v.competitive with China (as per mgmt - during my call 1-2 months back)

Balance Sheet
No Debt
Cash in Hand ~ 35.5cr
Account Receivable (13.75cr) ~= Account Payable (10.4cr) - if not zero / negative (Buffet’s float money) - net account receivables is v.low

growth in earnings observed in past couple of years - mainly due to China factories were closed down - pollution issue. Highly regulated industry by Pollution board. Even Shree Hari factory was closed in Mar’13 compete financial year and approx 1 month in Q2FY16. Company reported a loss in Q2FY16 - i guess mainly for 2 reasons

  1. Factory was closed - hence sales dip
  2. Bureaucrat expense - to get the factory operational (though I guess Pollution norms must have been met - after Mar’13 issue - just guessing)

High Margins - in spite of low cost manufacturer
High ROE - due to low equity base
cash rich

Disc - Invested - tracking state


I used to be in this stock with a small allocation for all the above reasons but the the nosedive, following the Maharashtra pollution board’s closure notice in June scared me. My attempts to reach the management and get a possible resolution date was of no avail. Manufacturing restarted in July but I had exited by then.

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I entered at 91, received dividend. I assumed Q2 will be poor due to factory closure issue hence exited at 110. Post Q2 result - stock nose dived and I re-entered at CMP

While studying the AR 2014-15, I came across following

Being exporter, I thought their forex earnings would be much higher than outgo, can somebody throw light on this disconnect?

Disc : not invested but started looking at it

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MPCB directs Shree Hari Chemicals to shut down Mahad plant
This is the second time that the company had been asked to stop work. In February 2012, Shree Hari Chemicals had to close down production activities as per the directions of MPCB


@ Marathon - not sure - somebody has to throw some light
@ whipsaw - mentioned in my write up as well - factory was closed for a month

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I have noted that promoter directors are getting well compensated. As per AR 2014-15, when company sale grew by 2.12 times and profit grew by 2.38 times, remuneration for two promotors - Chairman /ED and MD grew by 3.41 times. Maybe the same money is being used to buy the stock :wink:

Also the company purchased cars worth 1.31 Crores during the year. It seems that could explain part of foreign exchange outgo expenses for the year :smile:

All in all, I am concerned about corporate governance issues. In good times, these issues get swept under the carpet. But the bad times can expose them… So I would prefer to sit on sidelines for now and watch few quarters.

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In my attempts to reach the management for regular and valid concerns, I found that - you can at best reach the CS. He too is uncomfortable in sharing any of the regular info (forget about business insights etc) and you run into a wall. Also, the inconsistencies across various Qtr results could not be explained by him, even when the factory was producing before the closure. All in all, typical small cap, with zero interest from anyone to connect from the management end

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Hi, Good Analysis but if factory is closed and there is no future about company how share value will rerate, company will keep posting operational expness as loss and will not able to grow money other than earning interests on cash in hand. Similar company Smartlink sitting with hugh cash but not able to sell products and not able to increase sales then how will it gives CAGR on capital employed / cash in hand.

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My sources tell me that the price of H-Acid have dropped from Rs. 1600-1800 till last year to Rs. 300-400 in the current year.
Plus most of the sales are made outside the books.
Plus there are pollution norms and most of these companies are not complying with the norms in the true sense of the word - just managing the situation
These are the negative points.

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This will be risk in this business (short term / long term). But if company is listed since 1992 doing same thing for so many years now, and Modi’s Make in India is to happen - then I dont see closure of business. There can b closure of factory in worst case and Shree Hari can move to Gujarat state - mai baap for all factories to b opened (may chemical factories in Vapi (Gujarat) ).

Buffet - “Buying the stock at that price was like picking up a discarded cigar butt that had one puff remaining in it but available at free of cost” for Shree Hari

But also true is - (not for Shree Hari) - “Buying quality business at fair price is far better than buying average business at discounted price” for Kaveri Seeds / NMDC / GMDC / Vardhman Acrylics

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Seems like prices are again shooting. just a fwd from friend pasted below


Our interaction with the dealers and companies have indicated sharp rise across all the dye intermediates in the last ten days. Especially, H acid prices are up 2x to Rs 1,000 per kg, while Gamma acid is up 60% to Rs 560 per kg and Vinyl Sulphone is up 93% to Rs 300 per kg since February 2016. We have been tracking prices of these intermediates for the last couple of years (through continuous dealer interaction) and find it to be very volatile.
What’s the reason for such a reaction?

One of the China’s biggest chemical company “HUBEI CHUYUAN” has been shut down by the regulatory authorities owing to non compliance of effluent treatment. Hubei Chuyuan Group is one of the largest chemicals group company in China and mainly produces dyestuffs, dyestuffs intermediate, fertilizers, pesticides and pharmaceuticals. Since 1990, it has been producing intermediates for Reactive Dyes and established itself as the World’s largest production unit for H-acid, K-acid and Para base. By producing eight main intermediates of Reactive dyes, it is presently controlling about 60% of the global intermediate market for reactive dyes. Therefore sudden shutdown of huge capacities is expected to result in a supply glut thereby driving chemical prices.

Is this normal?

We have been tracking prices of these intermediates for the last couple of years (through continuous dealer interaction) and find it to be very volatile. Post implementation of strict effluent treatment norms by Chinese government from January 2015, chemical companies in China have been witnessing shut down notices owing to non compliance. This has led to volatility with chemical prices witnessing sharp rise for 3-4 months and then settling down at the normal rate once the capacities become operation after taking corrective action by the companies.

In FY15, one of the bigger company in China namely Zhejian Runtu Co. Ltd, witnessed shutdown notice and had to take corrective action. It took almost 3-4 months for the company to come back and make its capacities operational. This resulted into driving up the prices of H acid from Rs 250 per kg to almost Rs 2,000 per kg and stabilised at Rs 400 per kg after the capacities got commissioned.

In FY16, fewer capacities witnessed shutdown (no big names) resulting into again driving up the prices of H acid to Rs 1,000 per kg. Now, again one of the bigger players has witnessed shutdown notice which is driving up the prices.

Incidentally all these shut down notices have taken place just before the peak demand for dyes (February to July) leading to supply glut and panic buying from the users. We have also observed that despite such sharp rise, the impact on the final product (dyeing of textiles) was restricted to 5-6% only. The textile companies did not hesitate and allowed hikes after some negotiations.

Is the trend different from earlier years?

Our interaction with the dealers and companies indicate that the current trend is different as

· The capacities going out of the system are huge and command very high global market share. Therefore, they expect the rally to continue at least till the time the capacities become operational

· Even if one assumes it to be operational in 3-4 months, it would be couple of months before the G-20 SUMMIT which is being held in China (Hangzhou, Zhejiang) from 4th September to 5th September 2016. It has been observed in the past that whenever there is a global event in China, the government authorities swing in action and curtail the manufacturing activities to control pollution so that they have clean air (difficult to have clear skies in China if the manufacturing is in full swing). Thus the Indian players believe that the capacities might take longer time to get operational thereby providing longer window of opportunity to keep price at higher level

· Lastly, the raw materials costs are benign this time owing to falling crude thereby expecting higher profitability for the Indian companies

What to expect now?

We expect prices to remain at elevated level at least till these capacities come back on-stream. Therefore FY17E could yield windfall gains to Indian companies. Some of the companies that have exposure to dye intermediates and dyes stuffs are

Atul Ltd (ATLP IN) – Derives ~21% of its revenues from Colors (dyes and pigments) and is backward integrated to H acid.

Aarti Industries (ARTO IN) - Derives 25-30% of speciality chemicals revenues (~80% of total revenues) from dyes and pigments.

Bodal Chemicals (BODL IN) – Is purely a Dyes intermediate and dyes stuff player.

Shree Pushkar Chemicals & Fertilisers Ltd (PCFL IN) – Has exposure to H Acid and Dyestuffs.

Bhageria Industries (BDGC IN) – Is purely a H acid player (Dyes intermediates).

Shree Hari Chemicals Exports Ltd (SRHC IN) - Is purely a H acid player (Dyes intermediates).

Kiri Industries (KIRI IN) – Dyes intermediate and Dyes stuff player. Could be next the Bodal as it intends to repay debt. The debt has been reduced to Rs 4.1 bn from Rs 8.5 bn last year and plans to further reduce it by Rs 2.5 bn in FY17E.

Aksharchem (India) Ltd (ADCH IN) – Is purely a Vinyl Sulphone player.

We also expect this to have a rub-off effect on other chemical companies as well, especially pigment manufacturing companies.


Has the plant been reopened after Nov-15 shutdown?

Plant opened after shutdown but with 75% capacity restriction

Any source for news? Would appreciate if you can share link or let us know the source.

Discl: No investment in Shree Hari but investor in Bodal Chemical.

@GreyCells Amol, Can you get the monthly data of H-acid prices? This way we will be able to track the company’s performance as well.

Disc: Not invested in Shree Hari Chemicals, looking to invest in Bodal Chemicals

here you go
you will need to create an account though.


Here is the report from zauba.

Although there is some rise in volumes (48978 in Feb to 173607 in March and april is happening) but not as big as in 2014 as such but the prices have increased from 292 to 450.


I went through the company details & the annual report today.

From the little I could make out of it., my observations are as mentioned below :

Strengths :

  1. Most lucrative one : Cash in hand., which can be utilised in the future to create more value for the company.
  2. Low Price to Earnings ratio.
  3. Decent Growth in both recent Sales & Profit.

Negatives :

  1. Company is dependent on just 1 product (H-acid)
  2. The renumeration & commissions to both the full-time directors seem to be on higher side ( Rs. 1.84 cr + Rs. 1.84 cr = Rs. 3.68 cr )
  3. On the other hand, I found this note in the AR very surprising. The renumeration to the company secretary Ms Priyanka Ajmera is listed as Rs. 0.025 Lakh ( Rs. 2500/- annually ), that makes it to Rs. 200/- per month.
  4. No Management Discussion / Guidance in the AR.
  5. Technical qualifications of the Directors ( which I personally give some importance to )
  6. Prone to plant closures under Pollution control norms., as seen in the past.

Discl. : Tracking & Not invested yet.

The company secretary joined the organization on 26th March 2015. So the figure is Salary for one week rather than whole year.

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