Created this video presentation on macro factors around this sector. Had created these slides earlier, but we decided to focus on companies during the meet hence didn’t cover this.
Hope this helps to connect the dots between macro and micro factors.
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Excellent presentation vivek …
After your presentation I did go through the AR of few speciality chemical companies. Only aarti and vinati appear to be benefitting immensely from the china transition.
2. Aarti looks set to gain considerably as their are visible moats in it’s products which helped them secure long term contracts ( time span 10 to 20 years). How can we find out why is the mnc even willing to finance their capex.
3. The management of aarti is very thick skinned and tv anchors tried their bit to dig info from them but mr gogri hardly budges… Contrastingly their AR is very detailed and informative.
4. One question which arrives in my mind is how strict and followed up are the safety norms in india. As in how reliable are the claims made by the companies about their safety norms. Most of the chemical industry is concentrated in dahej and other parts of Gujarat and Maharashtra. These states do have high temperatures during the summer seasons too. Also we know how dicy are the corporate governance standards in india. So it would be prudent to know in detail how sound the safety norms are the also the system around it. # sterlites Tamil Nadu plant is still closed even after they deny all allegations.
5. Can you provide or suggest where to dig more data. As in which chemicals are mostly being affected by the clampdown of chemical industry in japan… Who are other manufactures of the chemicals and where does the major demand come from.
Also chemical industry is cyclical in nature , so valuations wise how to approach such companies and what do we need to look out for before making a investment decision .
Regards
Divyansh
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Thanks Divyansh. Glad you liked it. As I mentioned, this was team work and everyone had put in the hard work for getting it into shape.
Objective was to provide insights on many companies in the sector so that one can separate wheat from chaff.
I agree on safety norms and that is one of the major risk in the sector, if we can call it a knockout risk also (imagine something like Bhopal gas tragedy happens). One need to factor this while giving valuation to a particular company. Ideally diversified plant locations can help to some extent.
For more data, you can explore UN Comtrade website; This can help you with import export data to track supply-demand of various chemicals. There are many industry reports that come out from likes of FICCI and other international bodies which might be worth exploring.
One should value this sector based on normalized earnings (removing any one-off spike in the their product prices); Companies in H-Acid and Vinyl Sulphone is classic example. What multiple to give is very subjective and one has to take an independent call based on risk-reward one is looking for.
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Guys who want to catch bus in FOMO in chemicals, please read the warning coming from world leader…their prediction of profit is worst than 2008 crisis…
https://www.icis.com/explore/resources/news/2019/07/10/10389609/insight-basf-profit-warning-signals-major-chemicals-slowdown-in-second-half
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First month of serious degrowth in Organic Chemicals in 2 years. What is shocking is that while there is realization growth, the volumes have shrunk by 50% almost. Now all the global majors warning makes sense. Better to be bit careful in this space, especially with lofty valuations.
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McKinsey & Company, at the invitation of Indian Chemical Council (ICC), has prepared a report “ The Indian chemical industry : Unleashing the next wave of growth” on the occasion of the 13th Annual India Chemical Industry Outlook Conference.
Some key conclusions.
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India’s chemicals story is one of outperformance and promise. A consistent value creator, the chemical industry remains an attractive hub of opportunities even in an environment of global uncertainties. The trends shaping the global chemical industry spell uncertainty in the global context, but they could open up some near-term opportunities for the Indian chemical industry.
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Chemicals are a significant part of India’s trade flow, ranking 3rd in exports and 4th in Imports
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Worldwide trends affecting the global chemical industry could lead to near-term opportunities for chemical companies in India. How chemical players prioritize and tap this value-creating potential could shape the future of the industry in India as well as the country’s trade performance.
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India’s chemical industry is a global outperformer in returns to shareholders and remains an attractive hub for chemical companies. This outperformance has resulted in high expectations for sustained, continual growth of the industry’s top line and bottom line.
5) Use of digital and analytics (DnA) to improve margins by about 3 to 5 percentage points of EBITDA
Read / Download the Report
Indian_chemical_industry_Unleashing.pdf (2.9 MB)
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Though it is a very detailed report - it does not give any hint on which Indian manufactures could benefit, and therefore, what stocks to buy ?
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What is API ? why India lost it’s ground to china … ? Some basic concepts
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This happened today and there was the dreadful gas leak by LG polymers … The hazardous and safety risk of chemical industry if staring right at us… such incidents also bring out that compliance still has loopholes.
People invested in this sector should double read what their company is doing and the same should be asked in concalls and q&a…
Regards
Divyansh
1 Like