I would like to discuss a chemical company Yasho Industries, its a small company with 400 Cr. revenue and 700 Cr Mcap. It has 5 product lines with 160 products, 3 manufacturing location in Gujarat and sells products in 40 countries. Below is the contribution of different product lines:
Rubber Chemicals - 36%
Has range of accelerators, antioxidants,coagents and other. Used in production of tyres, hose, seals, conveyor belts, gloves, condoms etc.Both domestic and export consumption with double digit margin
Aroma Chemical -25%
Leader in Clove Oil. It is used in cosmetics and medicines. Both domestic and export consumption with single digit margin
Food Antioxidant - 16%
Avoids food oxidation and hence used as preservative in packaged food.Both domestic and export consumption with single digit margin
Used in different segment of industry such as Electroplating chemicals, Intermediates for API / Bulk Drugs, UPR Resins / Fibre Composites Resins, Thermoplastics Urethanes (Polyurethanes), Printing Inks & Agrochemicals.Both domestic and export consumption with double digit margin.
Lubricant Chemical -8%
The additives are used in industrial/automotive lubes and grease. They act as antioxidants,friction modifier, antiwear agents, corrosion inhibitor etc.Both domestic and export consumption with double digit margin.
The company maintains food antioxidant and aroma chemicals as competitive business and hence focussing on increasing sales of rubber, lubricant and speciality chemicals which also have better export potential.
The region sales split is:
India - 37%
Europe - 28%
It also boasts of marquee clients like Dabur, HP, IOC, Continental, Apollo,MRF, CEAT, Adani Wilmar, Keva, Kemin, Lanxess etc.
It has total of 11000 MT capacity which is fungible.
The company is currently run by brothers who took over from their father who remains the founder Chairman.
Company aims to reach optimum capacity utilization by 2023. I could not find any mention of next leg of capex. Company has revenue CAGR of 13% and profit CAGR of 39% for last 3 years. EBITDA margin has improved from 11% in 2019 to 14% in 2021 owing to shift to higher margin products.
1.Company has 160 Cr of debt and working capital cycle is 110+ days and CCC is also long at 120+ days largely due to higher inventory of RM and FG due to import nature of RM and limited bargaining power. The business is capital intensive and remain exposed to RM price volatility and forex risks as well.
2. Company mentions it will reach optimum capacity utilization by 2022, hence for future growth they will need more capital which may further worsen the balance sheet
3. KMP remuneration is high considering the size of company and profits it does. 3 top personnel get 3 Cr + as remuneration and promoter has extended loan to company through which he gets nearly 3 Cr as interest
4. Company does not do concalls and AR quality needs significant improvement
- Fast growing company in niche chemicals needing significant R&D efforts which long gestation time to get customer approval
- Focus on increasing exports and higher margin products
- Valuation are reasonable
- High promoter holding (74%) and no large investor holding
Disclosure: Invested with 3% of portfolio