I was trying to find negative points with regards to Transpek, and came up with below few “negative” slides. They may/ may not be serious for others.
These slides are part of my small video on the company. Rest of video can be viewed at Transpek Industry Ltd - Chlorine Chemistry & Political Donations - YouTube
Earning concall highlights below:
please add/correct in below points
Management commentary:
Total of 66000MT capacity
Full R&D factory accredited by govt
ISO tank for transport
70-74% export business
Solid relationship with chemical giant i.e. Dupoint
Q3 and 9M impacted due to pandemic
long term agreement - no change in agreement
Slowness in aerospace, automobile, defense (Dupoint products)
Capex on hold - will be announced once situation is improved
Trying to reduce product concentration
Working on adding new product and client to overcome issues faced due to pandemic
No timeline for new product given - will be announced once e2e completed/ready
Last 3 month situation improved and believe will gradually improve
QnA:
Transpek silox agreement > Sulphur dioxide n other one are bi product > supply agreement > cost + pricing > low margin
No impact because of raw material
Discussion on long term contract with 2 new client but this will be not long as dupoint but will like 2 yr contract. This will be announced once it is materialized
Look for performance on annual basis and not on quarterly basis because of volatile nature of business
Product of company are mid-range between commodity and specialty
Take or pay contract term with Dupoint > on reaching min volume we expect to receive Reimbursement > it will be received in Q4
2 new product at advance stage of testing in pharma will be announced soon
Polymer currently contribute 70%, it will be reduced to around 50% in next 1 to 1.5 yrs by increasing focus on other product
Current utilization 65 %
Discussion with Gujarat govt for various capex/extension
we have 3 job work companies on fix rent with 12000 MT capacity
total 4-5 product launch in next 2 yr, each contributing 10- 30 cr revenue
aramid fiber demand are expected to grow at 10% every year until 2027-28 as per report
55 cr limit, utilizing 20cr n total borrowing = apprx 62 cr , fix deposit 8 cr
With most of points covered in post above
Key take aways
best case scenario
This is not an aggressive mgmt team, conservative and trying to be more communicative, likely bottomed out in this quarter and will see improvement starting next few quarters with low bases of last year ( major dependency being end use industries Aerospace, auto, defense sector getting back on track… and new products being produced for agro and pharma )
FY 22 could be inline with FY20 - 700 to 800 cr revenue, 75 to 80Cr PAT, and 130-140 type EPS - current mkt cap is sub 800cr, some variance but no major surprises, downside limited and upside is kind of clear as well in near term.
Invested - Q4 will be key , may trim to tracking given other opportunities
Transpek Industries Conference call 1 March 2021
Opening Remarks:
The company started its operation in 1960s, diversify in Chemical business in 1970s. Developed process for Chrlorination. The company has developed specialty in dealing two hazardous chemical, Sulphur and Chlorine. Polymer, Pharma, Paint/Pigment, Agrochemical are major end use of products manufactured by the company.
Polymer business details
The recent growth in last 2 years, has been driven by long term supply contract which company entered with MNC Chemical Company. The company supply a monomer to customer. Customer converts this monomer which is heat resistance/ fire resistance property. Such polymer are also of light weight and high strength and find their application in Aerospace, Defense and Automobile. While margin for polymer business (specifically in long term contract) are comparable to other products, the long term contract in past provided very large volume to the company which resulted in improvement in overall performance.
With Covid heating the global market, Aerospace and Automobile (polymer mainly in used in high end luxury/racing car in Break plate and Clutch Plate) adversely affected. Further, expenditure in defense sector also got lower priority as compared with large expenditure on healthcare in developed. These factors adversely affected off take of volume of monomer from the company’s end, which also reflected in poor sales and profit margin.
While situation is improving and volume off take is also increasing during December 2020 quarter, the management find it difficult to project when the volume would reach to pre-Covid levels. Having said that, they are reasonably sure that sector (Aramic fiber, broad segment of polymer which is was monomer of the company cater to, is expected to grow at 10% p.a. in volume till 2027 as per published reports) Hence, the question is more of when the demand would reach and exceed pre-Covid levels.
Medium term growth prospect
The company is in process to two develop two products in Pharmaceutical intermediate for which are various stage of development. The sample are shared with customer for both the products. However, the process to get order and materialize same in sales would be reasonably long as same also governed by expiry date of final patented formulation. The customer of the company would only be able to manufacture product after patent expiry, while it may tie-up intermediate supply much before the patent expiry date.
The company has total capacity of around 66,000 p.a. including various captive used chemical capacity. Adjusted for captive products, the net capacity would be around 16,000 tpa. In addition, the company also have access to 3 Job work supplier located in same manufacturing complex for which company has entered into Job work arrangement. These three units can provide additional around 12,000 tpa, resulting in total capacity of 28,000 tpa. During April 2020 to January 2021 period, the company utilisation of capacity was around 35%, currently, this utilisation improved further to 60%. Hence, the company does not find any major capex requirement for new products growth. With existing products, the company can achieve around Rs 500-700 Cr sales along with around 15-20% EBITDA margin.
However, there are various discussion with customer for new products/ application of existing product. While many of them are in medium term nature and moderate volume, in case there is major order, then company would evaluate situation and plan for major capex and inform the investor. At this stage, the company does not perceive requirement for major capex.
The company can also launch new products by way of working on product exchange without getting Environment approval. The company is finding increasingly difficult to get EC approval at existing location. However, it continue to take the matter with appropriate government authorities to get EC approval for expansion. Of 100 acres complex, currently only 49 acres land is utilized in manufacturing plant.
Increase diversification
While with new long term contract business, the company able to show major growth in topline and bottom line in past two years, the sales of the company was highly concentrated in polymer business (to extent of 70%). The company now intend to launch new products/application of existing in products in non-polymer application to diversify the end segment. Over next 2-3 years, the management expect, polymer business to account for 45-50% sales as against current level of ~70%. The objective is not to reduce sale of polymer, but to show higher sales growth in non-polymer business to reduce volatility in business.
Arrangement with JVs
The company has into JV agreement with 3 companies which are related parties. These company assist company to manage usage of co-products and by-products usage, which ensure sustainability of manufacturing for Transpek. Transpek Industries pay job work charge on cost plus basis to these JV companies.
Summary of notes:
While polymer business volume growth is resuming, there would be 2-3 quarters time to reach to pre-Covid level. The management is trying to address this slow down by introducing new products in non-polymer segments, specifically in Pharmaceutical. There are no major capex plan during next year for capacity expansion, although there would capex for reconfiguration of capacity for launching new products.
The company is in discussion with various customers for various new products. However, at current stage the company does not see requirement of major capex. In view of above, in my understanding, the company would take at least 6-12 months’ time to reach FY20 performance.3
Disclosure: Transpek Industries is among my core investment in portfolio. My view may be biased due to my investment. I am neither SEBI registered analyst nor recommending any investment decision in the company. There is scope of misinterpretation/ mis-communication from my side while taking note of conference call and reader shall consider that fact while reading this message.
What is this exactly? Is this purchasing of technology for new products from other company?
Any information as to why they keep two different chemical companies (Excel Ind & Transpek) with comparable niche? If they merge these two companies then this problem of product concentration will diminish. Excel industries also derive 40% revenues from DETC. Anyone ever raised this issue to them?
Appreciate your efforts to bring valid concern about the company. Just trying to provide my view point on some of this point. Please note, by no way this is undermine your efforts.
Slide one RPT Point 2, Rs 47 Lakhs commission 565 Cr sale in FY20 is not even 10 bps. I do not see this as material point to consider. Nevertheless, there is still need an understanding why this commission being paid?
Slide 3, TML related party deals, as per discussion with management on con call and past AGM, the company is facing issue in getting environment clearance at the existing complex. Hence, in order to increase revenue, it is relying on group companies which are located in same complex. This arrangement has been discussed in AGM and management did proivde some more details in 1 March 2021 con call.
Slide 4: While the corporate office group is in Mahashatra, the manufacturing is in Vadodara, it is more likely to be influenced by Gujarat State Government then Maharashtra in my limited understanding.
Once again, thanks for sharing your concern.
On first point, in my understanding, it would be exchanging similar kind of products which is allowed for manufacturing by pollution control board by not manufacturing approved product, and manufacturing similar kind of product which was not approved originally. This is my interpretation and it may be wrong.
On second point, I have limited understanding of Excel product profile. However, what Transpek make is monomer which is used for manufacturing Keliver, a brand of polymers manufacture by MNC chemical company. You may check whether DETC also get used for same brand or it is different polymer. I have no knowledge to comment on this point.
@ayushmit - During the conference call, your question was based on company going back to low margin low cost products to balance the low sales of current 70% concentration of polymer business. The answer from management that they are working on new products. However there was not detailed elaboration on what levels of margin/cost these new products command. Were you satisfied with the answer? Do you have any additional info that these new products are low margin/low cost kind of?
Not invested. Researching on whether to invest and to find out what should be the right price with good margin of safety if the current MNC continue to not pick up the material for longer than current expected timeline of 6 months.
Hi Tushar,
I think nobody knows what the margins would be. It all depends on combination of several factors like - offtake of products, utilization level etc. But what we can guess from the interaction is that the management is aware and trying to do products which would involve value-addition and are perhaps niche and related to what they are already doing.
The worry would have been if they would have said - we will do more of old products to utilize spare capacity.
From Q1 Earning release of DuPont
However, demand in end markets such as aerospace and oil and gas is still below 2019 levels, but has improved since the lows of the second and third quarter of last year. Sequentially, our sales into aero and oil and gas were
up over 40%.
DuPontdeNemours,Inc.Q12021EarningsCall.pdf (312.4 KB)
I have highlighted the portion in call which is relevant from the POV of Transpek.
Does anyone have any information on whether Transpek has any kind of plans to manufacture downstream products, dimers, etc from their monomer products or forward integration?
Thanks in advance.
Disclosure: Tracking, not invested
Airways traffic started increasing now in US after no Mask after vaccination . This will help transpek. Hope good result start flowing againg from Q2 …
Planes resuming flying is a good sign but it is still far before impact is seen in Transpek.
Transpek producer monomer, which are used by Customer(e.g Dow) to manufacture products that are directly/indirectly used in making planes. For last 12 months most of the planes are biting the dust. Although situation in the US has improved considerably, the situation in other part of the work is still lacklustre. Europe travel is resuming slowing as the more and more population is vaccinated.
But it is still early to see when the new planes manufacturing picks up. There are so many planes seating idle, not many airlines will order new planes. In fact most - if not all- would be delaying order for new planes.
IMO Airlines business won’t pick up in hurry in 2021.
Results and dividend declared
DuPont recently announced New Kevlar® MicroCore™ for use in battery separators to help address the growing demand for safer, higher-performing lithium ion batteries for electric vehicles (EVs).
https://www.dupont.com/knowledge/DuPont-Announces-New-Kevlar-MicroCore.html
How this article of DuPont is related to this company can u pls clarify
Transpek provides Terephthaloyl Chloride to Dupont for manufacturing of Kevlar.
Company has release presentation for Q4-F21 yesterday.
Most of the contents seems to be copied over from earlier con call, and other than Q4 number, most of the things looked same to me.
Reported Q1-FY 22 PAT of 13.52 cr.
Q1 22 presentation
Overall commentary positive, as part of derisking, further in roads in Pharma and Agrochem with new products ( visible in Q1 MIX. ).
Guidance EBDITA in range of 16-20% with possible upside in good times. Peak utilization can give upto 700 cr revenue at current setup.
FY 20 rev was 566 cr, 21% margin, 73 cr profit and 130 EPS despite Q120 start being low margins at 8%. With a good headstart in Q1 22 and demand commentary good including Dupont visibility, they have a good chance to exceed that.
Stock yesterday took out all time high with decent volume - says something.
Invested
