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VP Chintan Baithak - 2018 - Changing Dynamics of Chemical Industry: Impact of China

Hi Guys,

Please find attached the presentation on Changing Dynamics of Chemical Industry - Impact of China prepared by @Mridul, @ananth, @spatel and I. The intent of the presentation was to discuss how the issues in China can result in sustainabVP Chemical Presentation.pdf (1.7 MB)
le business opportunities for Indian chemical companies. Chemicals is a vast area and there are only a few sub-sectors where we think we have some knowledge.
Please note that the companies discussed in the presentation are purely from educational perspective.

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Hi Ankit,

Thanks! Very informative presentation on Chemical Industry. I am analysing the Dye chemical companies numbers for first quarter and found that though sales has increased but margins have dropped & ultimately negligible increase in bottom line. Have you analysed this aspect?

Regards
Gaurav

Kudos to you guys… Nice data points and some really good research done.

@ankitgupta @ananth @spatel Great presentation guys!

excellent and comprehensive - helps retail investors understand the industry and take informed decisions.

Thank you so much! This is an awesome report and awesome work.

@ankitgupta, @Mridul, @ananth and @spatel Thank you for the presentation. Great work by you guys.

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Thanks to all the owners of this topic. This is a wonderful effort with lot of research. A few questions from my side:

  1. Sustainability: Can we term this sector as long term compounder ? If we talk about China factor, it is one off and the same can happen with Indian govt. regulations in future as well.

  2. What is the impact on manufacturers of intermediates for Bulk drugs API. Does it also benefit from dual factors of China shutdown and India focusing more on this side with bulk drugs park, etc ?

  3. Should we target market leaders in this segment or new entrants / SME segment gives better return ratio ? I know this is very subjective and depends on companies, products, management, balance sheets, etc. but just to get your opinion on this.

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  1. I would look for good mgmts that can milk this opportunity…not everything will compound. India has already gone through this pain in earlier years as depicted in one of the slides. But yes, future is fuzzy. Things can change with environmental concerns gaining traction.

  2. Intermediate, advanced intermediates that go into API manufacturing have got good tailwinds due to China closures.

  3. If you are looking for compounders, mgmt is the most critical factor. Though, there are many short term plays as well. I would go with multiproduct companies with inherent strength and ethical but hungry mgmt.

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Dear Mridul
May I request few names to start and do my own research
Apart from what has been mentioned in ppt I think Solara active pharma is good

Regards

Hi Saurabh,

Apologies for delayed response. Here is my response for some of your questions:

  1. Sustainability: I am personally looking at companies where because of the China issue there is some permanent shift of contract/customers to the Indian companies or the competitiveness of the Indian companies increases because of increasing costs in China. Can such companies be long term compounders? Yes, I think so. I am not sure about sustainability of stories where prices of the products have increased multi fold due to China issue. What if the supply from China comes back, albeit with higher cost! In the past despite the China issue not being there, there have been many chemical companies which have created.
  2. As per my interaction with some of the API companies, the intermediate guys are the ones getting the maximum benefit from the China issue. API companies which are fully backward integrated might also reap in some benefit but it seems that they are facing some higher RM prices.
  3. I think its very subjective but am looking for companies which have a niche in terms of chemistry (some processes where they have expertise), they are backward integrated in terms of no of reactions they do (N - 5, N - 8 etc), have good R&D team, have good clients etc and are seeing structural changes due to China issue. The size of the company doesn’t matter much if the company is good.
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What a presentation you have shared with us . Thanks a Ton friends, how much pain you have taken to decode the things and put it in very simple , easy to understand language .
Regards ,
Vakharia MJ

Concall summaries of different chemical companies. Reading these back-to-back gives an excellent idea of each company’s sectoral outlook (they cater to diverse sectors from textiles, tyres, agri etc.), guidance, optimism, debt situation, capex planned etc.

https://drive.google.com/drive/folders/148kqc8HLcd3VlYF4BRnlA-kPmcy49ayN

P.S. This is not my work and I chanced upon it.

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Brilliant Work, Guys! All data points nicely encapsulated.

Came across this ppt which should add value to this thread.
http://balmoraladvisors.com/wp-content/uploads/2018/05/balmoral-presentation-icis-surfactants-5-2018.pdf

Especially knowing Private Owner’s multiple.

The global chemical market witnessed 1,127 M&A deals in 2017, corresponding to a deal value of US$100 BN and a median EV/EBITDA multiple of 10.2x; PE-backed M&As accounted for 4.9% of the total deal volume

In recent times, global chemical M&A has come to be defined by increased investment in the commodities and fertilizers & agricultural sectors, expected increase in megadeals, and emergence of novel dynamics

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Great presentation. Yday. ZEE BUSSINESS. Had mentioned that China is relaxing pollution control and will allow industry to produce for local consumption and won’t allow export from polluting industry.

Can u please very it as it may impact price…

Above panel discussion throws light on China situation and possible benefit to Indian chemical companies who can scale up.

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@ankitgupta - Will be great if you would be able to share some of such names, especially ones which may end up benefiting from the coronavirus situation.

Hi All,

Chemical sector all together and its variant branches

Till 2006, the European Union and the United States were the biggest players in global chemical sales (25% and 29% in 2006, 28% and 29% in 2000 respectively). At the turn of the millennium, China’s share in global chemical sales was just 6%, India’s share was an even-lesser 3.2%. By 2017, India maintained its share at 3.5% while China leads the industry with the sector-highest sales of 37%. The relative shares of US, EU and Japan have all been usurped by China. This is not a case of mere numbers. Chemical sales and industry have been a vital cog in the wheel in the China growth story until 2015-16.

As any careful observer of the global chemicals industry can testify, the chemical industry has outperformed global equity market in the last 15 years. In India’s case, the gulf is very wide. According to Datastream, Corporate Performance Analytics by McKinsey, between December 2006-19, Total Return to Shareholders (TRS) has grown at a CAGR of 15% while equity markets grew at 5%. If the time periods are pencilled down to December 2016-19, the corresponding numbers are 17% and 12% respectively. Indian Chemical Industry is also peerless (except for Consumer Products) as the TRS CAGR is significantly higher than related upstream/downstream sectors.

Here is the below chart done using excel - the data is from https://data.gov.in/search/site?query=chemicals (FREE)

The chart gives an idea about the production of chemicals in 2018-2019

Authenticity

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The site also provides API for data…

Chemical sector will be the booming sector for the next era

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Reference :

Note : This is for study & academic purpose and not an stock recommendation or for commercial purpose. The idea behind this is to know the industry and gain more insights…

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A great presentation by Raunak Onkar of PPFAS explaining the basics of Chemical Sector in India

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