Transpek Industry limited

Stock Opportunities Untested - but worth a good look
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Hi! Happened to read this now. I’m aware the new capex is put on hold though below is just in case it starts again in the next few quarters.

The Vizag plant is a greenfield project and doubt if you can do 2x asset turnover as it will have cost of land, buildings, sheds etc. The project to supply to Dow was a brownfield project and hence, had 2x asset turnover. I would say best to assume a 1.25x asset turnover. No doubt incremental capex after this should all be at higher asset turns

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One of the promoters Chetna Praful Saraiya gifted 6000 shares of the company

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Transpek Industry AR 2020 Notes

  • The net sale of the Company for the year under review is Rs.56326.25 Lakhs as compared to Rs.59233.41 Lakhs in the previous year, a decrease of 4.99%. Exports have decreased to Rs.47006.17 Lakhs from Rs.48352.26 Lakhs in the previous year i.e. a decrease of 2.78% .The Company has achieved a net profit of Rs.7294.36 Lakhs for the year 2019-20 as against Rs.6573.70 Lakhs in the previous year, i.e. an increase of 10.96%.
  • Company is a leading global supplier for chlorinated products to various industry sectors ranging from Pharmaceuticals, Agrochemicals and dyes to pigments. The Company has an excellent experience in manufacturing of products using chlorinated chemistry presenting unending opportunities for supply of intermediates and speciality chemicals suitable for multiple applications.
  • Due to its technical expertise in handling hazardous chemicals and a strong focus on safety & environment protection, your Company has built a solid reputation with world’s leading chemical giants, maintains successful business relations with them and supplies large quantities of Acid Chlorides.
  • Polymers and Plastic material: Company manufactures multiple products that are supplied to many global companies manufacturing Polymers and Speciality Plastics. The Company has significantly increased its supply in this sector under the long term agreement.
  • Pharma: Your Company has built strong relationships with many leading Pharma Companies in India who are its customers for a very long time. This is expected to provide a long term growth to the Company.
  • Agrochemicals: The Company has few products that go into making agrochemicals. The market for Company’s products has remained stagnant and it is not expected to have any significant change in the near future. However, your Company is working on few intermediates that have good potential.
  • Company is also working on other chemistries either as extension of Acid Chlorides or Independent of it. Some products are at R&D stage & some are at pilot stage.
  • Three key products that the Company manufactures
    Thionyl Chloride
    Acid Chlorides
    Sulphur Dioxide
  • Financial
    • Gross margins improved from 50% to 54% during the year.
    • Debt reduced from Rs. 144 cr in FY19 to Rs. 106 cr in FY20.
    • Rs. 37 cr Capex during the year.
    • R&D cost Rs. 3.64 cr during the year. (Rs. 3.11 in FY19).
    • Recognition, measurement and disclosures related to Leases:
      The Company’s leases comprises of leasing of ISO tanks used in storage and transportation of its material. The Company has adopted Ind AS 116, effective annual reporting period beginning April 1, 2019 and applied the standard to its leases applying modified retrospective approach. This has resulted in recognising a right-of-use asset of 2401.56 lakhs and a corresponding lease liability of equal amount. In the statement of profit and loss for the current year, the nature of expenses in respect of operating leases has changed from lease rent amounting to 858.07 lakhs to depreciation cost for the right to use asset amounting to 801.84 lakhs and finance cost amounting to 165.42 lakhs for interest accrued on lease liability. Due to above change, there is additional impact of 109.19 lakhs on statement of Profit and Loss for the year ended 31st March, 2020. The total cash outflow for leases is 703.39 lakhs for the year ended 31st March, 2020.
  • OUTLOOK:
    • We expect the business conditions to remain stable for your Company expecting a moderate growth in volumes for the year 2020-2021.
    • Also, there is a reduction in the customers product application which might result in reduction in our demand of products by the suppliers which the Company is trying to recover from other regional and global customers which will take time.
    • While there are many opportunities for growth, the government’s self reliant drive might provide more supportive business environment to the Chemical Industry. Also, uncertainty in the minds of the Global giants towards Chinese manufacturing companies might provide good opportunity to your Company for quick growth.
  • During the year, your Company incorporated a Wholly Owned Subsidiary viz. Transpek Creative Chemistry Private Limited (TCCPL) on 6th January, 2020. TCCPL was incorporated with the objective of pursuing various business opportunities.

Regards
Harshit Goel

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Transpek has uploaded investor pTranspek Inv PPT.pdf (2.4 MB) resentation on BSE website, attached for everyone.

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Transpek has Announcement Earnings Call Transcript on 1st October https://www.bseindia.com/corporates/ann.html?scrip=506687
Good corporate governance for a company who was earlier been very confidential about the way they do business.

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Important takeaways from Transpek AGM today:

  1. Current utilisation stands at 50-60%, hopeful of increasing the same once covid situation improves
  2. Confident of achieving 17 to 19% EBITDA margin going forward
  3. Long term contracts are very much in place and last 2 year revenue and profitability increase because of the same. Company looking to expand to different geographic and other long term contracts. Company is expected to benefit from the current china issue and is ready to acquire a new client so that dependency on a single client can be addressed .
  4. Difficult to carry out expansion at current sites due to approvals, So the issue of capacity expansion is addressed by tolling 2 facilities (2 private companies) if large demand comes from clients.
  5. New wholly owned subsidiary Transpek creative chemistry incorporated under new atma nirbhar scheme to get tax benefit and launch new products currently on hold due to challenging covid environment and will be started as and when situation improves and will be communicated, No land acquisition or any money spend for this as of now
  6. Timely communication and connect will be made with investors going forward and recently hired Strategic growth advisors for the same to shade away the existing image of the company. Recently company allowed couple of groups to visit factory
  7. Various New products are in the pipeline, once ready for launch will be communicated.
  8. No impact on raw material imported from China in terms of availability and cost
  9. Company ready to serve pharma companies with new products
  10. Stake in transpek silox ~ 7% (not heard clearly), supply raw material to them under contract

please add/update if any missing point

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Transpek Concall Notes

Bimal Mehta : MD

Institutional attendees :-

GIRIK CAPITAL
CAO CAPITAL
NAPEAN CAPITAL
ABACCUS ASSET MAMAGEMENT
GS INVESTMENT
DISCOVERY CAPITAL
LUCKY INVESTMENT
UNIQUE INVESTMENT
NIRMAL BANG
EDELWEISS BROKING LTD
SUNIDHI SECURITIES
CREDENCE WEALTH ADVISOR
PHILLIP CAPITAL
MONARC CAPITAL

Opening Remarks :-

1.Started in 1965 by Mr Govind ji shroff to manufacture acrylic sheets and ventured into making chemicals in 1968.
2.Have developed indigenous processes for various chlorine and sulphur based chemicals.
3.Currently we do reaction like chlorination, Acid chlorination with thionyl chloride , alcohol chlorination with thionyl chloride , Friedel craft , suphonation and amidation.
4.These are hazardous chemicals to handle(Major strength of company)
5.We are the first Indian company to manufacture chloro acetyl chloride and thionyl chloride.
6.Our products find application in making polymers , pharmaceutical , agrochemicals, colours and pigments and flavours and fregrance.
7.Polymers are used in making bullet proof jackets, aircraft parts, break and clutch pad for cars, space programs and construction (high rise buildings).
8.We have a multi-purpose and multi-product plant located at Ekalbara having capacity of 66000 metric ton.
10.We have build long standing relationship with global chemical companies over last 30 years.
11.70-75 % of revenue comes from exports.
12.For growth we are looking at various options
A)forward integration
B)other chemistry
C)new customers and new geography

Questions and Answers :-

1.Same product can give different margin depending on quanlity and specifications.
2.Operating at 50% capacity currently
3.Capacity utilisation should increase next year but difficult to guide at this point of time.
4.Product takes approximately 2 years in validation before it go for commercial production.
5.Value addition is not just dependent on number of steps but it also depends on complexity of particular step.
6.TPC and IPC are major molecules.We are selling these products to many customers.
7.On Vizag capex
A) There is so much uncertainty in near term so we want to play prudent in these times.
B)We will revisit it when situation normalises.
C)Size of project will be reworked according to opportunity.
8.We are working to reduce client concentration.
9.Both our big end user industries are growing well in double digits(Polymer and Pharma ).
10.Board will consider about Silox stake at appropriate time.
11.We are working on multiple products which have applications in pharma, polymers,cosmetics , flavours and fragrences… to reduce concentration on products.
12.We want to grow faster than historic rates.
13.On China tailwinds :-
A)Size of opportunity is big but till now nothing has happened on ground.
B)To replace China as a chemical manufacturing hub… industry need support from government on multiple fronts.
14.Most of the acid chlorides are developed in last 15 years.
15…We supply monomers to our customers.
16.Polymers are replacing metals.
17.There are competitors (CABB is big in clorination).
18.We can go upto 700-750 Cr with existing capacity in house and current tolling capacities but we have spare capacities at tolling locations.
19.Q4 capacity utilisation was 85-90%.
20.NO plan to become ZLD … But technology is ready with us.
21.No big company depend on only one supplier.
22.Very less dependence on china from raw material perspective.

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168

SEPT 20 SHP released for Transkep, key points to note:

LIC - out, previouly held 1.71 % stake

FINQUEST SECURITIES - out, previouly held 1.34 % stake

Marginal decrease in promoter stake from 58.86% to 58.35%

Individual share capital upto Rs. 2 Lacs increase from 24.94% to 27.48%

Seems some increase in free float, good for company untill someone acquires big chunk :slight_smile:

please add/update if any missing point

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Dupont Q3 results announced today, here is what they say about aramid fibers demand during the quarter:

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Q2 results out.

Revenue almost flat sequentially compared to Q1 (which is shocking considering Q1 had severe lockdown restrictions). On a y-o-y basis, revenue is down by 38%.

Almost 0 bottom-line (although costs have reduced, fall in revenues unable to compensate for savings in costs).

Balance sheet looks healthy. Overall results seem disappointing. Is the management so conservative? They are not committing to capex as well.

I have little doubts about promoter integrity in case of Transpek. Good to see receivables being converted to cash this year. Considering how conservative they are with respect to growth, this seems to be a steady 15-20% y-o-y growth compounder rather than a rapid multibagger.

Disc: invested

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Below point from today’s related party transaction address capex plan which was put on hold for short term ?

image
image883×138 35.6 KB

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To best my understanding, the company has couple of related party in same manufacturing complex which are taken on lease by the company. in past AGM and last AGM, Mr Mehta, MD did indicate about this relationship. I think this leasehold charge paid to utilise the manufacturing of this related party in limited understanding.

Discl: Among my core holding and my view may be biased. Not a SEBI registered advisor

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Not a good indicator for Transpek to get back to the earnings recovery, as Dupont has indicated about soft demand for aramid fibres in their Q4 result notes:

Within Safety Solutions, demand for Tyvek® protective garments remained strong but was more than offset by soft demand for aramid fibers across aerospace, oil & gas and select industrial markets.

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ok…so it seems todays result will be bad again and no imidiate recovery visible. But what about contract term which say take or pay? . Need to see details

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Once again a muted quarter, possibly due to DuPont orders being put on hold. Need to understand when the company is expected to clock full potential revenue.

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Hi Ravi - Do you know what is % sales contribution from DuPont in normal scenario?

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Hi, How should we see company growing in next 1-2 years? If anyone is tracking the company closely, what are the triggering criteria for the business over next few years. Other chemical companies like Deepak Nitrite etc are giving good results. But Transpek is not. So I was just wondering what should be our thesis on this business growth areas.

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Company is hosting con call long after Q3 result on 1 March

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Investor presentation - https://www.bseindia.com/xml-data/corpfiling/AttachLive/73ef830a-b084-4d11-82ab-10bd553ff2b8.pdf

Key highlights:

  1. Capex still being put on hold, no visibility on when they will be expanding
  2. Their key customer (DuPont) is seeing a slowdown in the aramid fibres segment
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