As of today, I created 2% position size in Punjab Chem. & Corp which reduces cash to 2%. I will categorize this as a turnaround candidate.
History: Company went on an aggressive debt funded acquisition spree in 2003-08 to acquire marketing capabilities in developed markets. This backfired in 2008 when there was a global slowdown and one of their factories had a large fire event, leading them to default on their debt obligations.
Things started changing around 2016-17 when management changed their business strategy, moving towards contract manufacturing for large agrichemical companies. Their largest customer UPL dug them out of the debt hole by giving large business for metamitron. Promoters saw positive business traction and settled debt obligations by infusing their own money. Since then, company has been adding new clients (Kureha, Adama, Corteva, Nippon Kayaku). I was looking at their export data, and it seems they have been supplying Metconazole technical to Valent USA (Sumitomo’s US arm). So, it seems that they are working with a large number of agchem innovators on long term contracts (5-year) and are also supplying certain patented molecules. All of this has meant that business is now stronger, and UPL’s contribution has decreased from 50% a few years back to ~30% currently. Additionally, company has beefed up top management through lateral hires and has appointed a new C-suite (CEO, CFO).
Company has also started doing investor concalls and have been quite honest about their plans. They aspire to be 1500 cr. topline company by 2025 and are confident that current capacity (along with certain brownfield expansion) allows them to reach this number. I found it interesting that their customers pay ~50% for capacity expansion through advances. Lets see how things evolve.
As I mentioned before, I have been building an agrichemical basket as this space is offering very high growth and reasonable valuations. This is actually better than the whole of pharma API theme, where there is more talk than business. Agchem (in technical export) is actually seeing very strong export growth which is because of China+1 playing out, and valuations are much more attractive. In the current fall, I am also looking at acquiring shares of other technical exporters like Meghmani, India Pesticides, Bharat Rasayan and UPL. I will keep this thread updated as and when I allocate more money. The current agchem basket has ~12% weightage and comprises of the following ompanies. I will also be happy to replace Swaraj Engine with a faster growing company.
Core compounder (64%)
| Companies | Weightage |
|---|---|
| I T C Ltd. | 8.00% |
| Housing Development Finance Corporation Ltd. | 4.00% |
| NESCO Ltd. | 4.00% |
| Manappuram Finance Ltd. | 4.00% |
| Alembic Pharmaceuticals Ltd. | 4.00% |
| Amara Raja Batteries Ltd. | 4.00% |
| Avanti Feeds Ltd. | 4.00% |
| Eris Lifesciences Ltd. | 4.00% |
| Ajanta Pharmaceuticals Ltd. | 4.00% |
| HDFC Asset Management Company Ltd | 4.00% |
| Aditya Birla Sun Life AMC Ltd | 4.00% |
| Aegis Logistics Ltd. | 4.00% |
| Gufic Biosciences | 4.00% |
| HDFC Bank Ltd. | 2.00% |
| PI Industries Ltd. | 2.00% |
| Control Print Limited | 2.00% |
| Shri Jagdamba Poly | 2.00% |
Cyclical (16%)
| Companies | Weightage |
|---|---|
| Kolte-Patil Developers Ltd. | 4.00% |
| Sharda Cropchem Ltd. | 4.00% |
| Ashiana Housing Ltd. | 2.00% |
| Ashok Leyland Ltd. | 2.00% |
| SWARAJ ENGINES LTD. | 2.00% |
| Kaveri Seed Company Ltd. | 2.00% |
Slow grower (4%)
| Companies | Weightage |
|---|---|
| Cochin Shipyard Ltd. | 4.00% |
Turnaround (8%)
| Companies | Weightage |
|---|---|
| CARE Ratings Ltd. | 4.00% |
| Lupin Ltd. | 2.00% |
| Punjab Chem. & Corp | 2.00% |
Deep value (6%)
| Companies | Weightage |
|---|---|
| ATUL AUTO LTD. | 1.00% |
| Jagran Prakashan Ltd. | 1.00% |
| D.B.Corp Ltd. | 1.00% |
| Time Technoplast Ltd. | 1.00% |
| RACL Geartech Ltd | 1.00% |
| Shemaroo Entertainment Ltd. | 1.00% |
Its because Johnson Control was a co-promoter and had sold their car battery business to private equity (Brookfield) in April 2019. This caused them being recategorized as public shareholders. Additionlly, Brookfield sold some stake in Q1FY22. The Indian promoter family has not sold any stake.