Yasho Industries

Hi Everyone,
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

Speciality -15%
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%
USA -17%
Europe - 28%
ROW -18%

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.

Concern
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

Positives

  1. Fast growing company in niche chemicals needing significant R&D efforts which long gestation time to get customer approval
  2. Focus on increasing exports and higher margin products
  3. Valuation are reasonable
  4. High promoter holding (74%) and no large investor holding

Disclosure: Invested with 3% of portfolio

18 Likes

As guided by moderator, i am detailing risk analysis further:
The capacity is going to be fully utilized by 2023, no further update on further capacity augmentation from management to drive future growth and how it will be funded so growth visibility is little missing. A large risk is also due to the dependence on imported RM, prices of which company has no control or limited negotiation power considering the size of the company though material cost has largely remained in between 65-68%. So the EBITDA margin can be under stress. Also the company maintains high level of inventory 120+ days which leads to lot of capital block and may lead to inventory revaluation losses. The company does not do concalls which limits the available information, there are few videos of the promoter on youtube talking about the company but the information is very scarce so it does not give high level of comfort.
Though the company has registered brand names of its products, it operates in highly competitive market with some of the product lines in more of commoditized category like emulsifiers, the company is moving towards niche segments of rubber and lubricant chemicals which has less competition and higher export potential with better margin, it remains to be seen the outcome of this strategy.
The red flag for me is the KMP remuneration. In 2021 a resolution was passed to increase the limit of remuneration to 3 Cr/person which is very high considering the size of the company. In addition to this promoters have extended loan to the company on which the promoter earns interest equivalent to remuneration. It is little discomforting but not unique to this company. I would like this to be discontinued. Thanks.

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The stock has moved sharply to 1200 Cr MCap, seems expensive on trailing basis, let us see how the results come in and will decide the future course basis that.

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The recent interview from ICICI Direct throws some light on capacity utilization and future growth plans.

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Thanks alot for sharing, it seems my concern around capacity is valid. Till the new greenfield plant comes up (expecting by 2025) the capacity is going to be capped at 11000 MT. So its going to be around 10% topline growth till new plant comes up but if i read between the line the bottom line growth projected to be 20% will be by adjusting portfolio mix to higher margin products of rubber, lubricant chemicals and bypassing distributors in export market. D/E is expected to remain at 1.5 till the cashflow from new plant are utilized to pay it off.

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The company is planning to raise money through preferential allotment of equity, indicating new green field plant plan is progressing well.

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Just came to know that Ashish Kacholia sir is the investor to whom preferential equity is allocated :grinning:

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Can we assume fair price is 855 based on this announcement? Any chance the stock corrects based on this announcement after a crazy rally?

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Personal thought : Fair price is subjective, if Ashish sir is buying at 855 i assume he expect it to go beyond this, how much and in what time frame we do not know.
No idea will it correct or not. I will not add more at this price, will wait because even if demand goes through the roof they do not have capacity to meet it. Till the greenfield project comes online growth will be restricted.

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Eyes on greenfield project. Otherwise the Company is expected to give good quarter

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Brilliant result, unlike other cos. margins expanded, could be due to mix change and ability to pass on increased RM cost.

Good to see promoter mentioning the reason that better margins is due to higher realization due to disruption. At the same time it highlights the fragility of margins, important to keep expectations under check and not build these margins as base case. The management does not do concall so many questions remain unanswered.

Mr. Parag Jhaveri, Managing Director & CEO, Yasho Industries Limited said, “Due to disruptions in China, global MNCs are looking into Indian chemical and agrochemical industries as an alternate supplier. COVID, logistical challenges, and now power constraints have accelerated the worldwide trend of de-risking the Chinese supply chain, which would benefit the Indian chemical suppliers like us. Due to these factors, limited supply is being sold at above-average prices throughout the world and we have benefited from this trend.
Discl - Invested

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Latest PPT of the company https://www.yashoindustries.com/uploads/7/9/4/9/7949862/investors_presentation_-_18-11-2021.pdf

Company did 11crs in 1Q, 14crs in 2Q. Extrapolating 2Q results for next 2 quarters the company is looking at Rs53crs of profits conservatively. At the current market cap of Rs1732crs stock trading 32.6x FY22 P/E and is relatively one of the cheaper chemical companies.

Disclosure: Invested

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Project of capacity expansion at our Unit 1 & Unit 2 has been completed and the company will benefit
from this over the next few quarters.

 Revenue at Rs 437.66 Cr, a growth of 68.7% YoY basis
 EBITDA at Rs 75.74 Cr, growth of 89.6% on YoY basis
 PAT at Rs 39.2 Cr, growth of 217% on YoY basis
 Sales volume stood at 8,051 MT, a growth of 49.5% on YoY basis

image

Latest PPT https://www.bseindia.com/xml-data/corpfiling/AttachLive/2a9d40da-ec48-459f-9bb2-3ed30bfd824a.pdf

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Yasho acquires land BSEINDIA for expansion

Yasho Industries Ltd to consider and approve capital expenditure for new greenfield project for the capacity of 15,500 Metric Tonne per annum at Pakhajan Village, Taluka: Vagra, Dist. Bharuch. F

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Capital expenditure of 350 cr for new greenfield project (15,500 MT pa capacity) approved.

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Mr. Parag Jhaveri, Managing Director & CEO, Yasho Industries Limited said, “We are pleased to report the highest annual performance for our company. Demand for all major chemicals have seen robust growth in FY22 as compared to FY21 despite all ongoing challenges in the country and the global market. Our revenue grew by 68.9% on YoY basis. Revenue for the quarter stood at Rs 186.2 Cr. Our sales volume grew by 43.3% and EBITDA grew by + 100 bps. Our rubber chemicals, lubricant additives & specialty chemical businesses continue to witness growth.

Our export business has contributed 64% in revenue and has maintained its growth momentum. This was primarily due to the high quality of our products and long-standing relationships with major customers.

This quarter we have witnessed unprecedented pressure on the margins due to volatile pricing of raw material, increasing energy & freight costs.

We are pleased to inform you that, we are well on track with our planned capex of Rs. 350 cr. which will bring in an additional capacity of 15500 MT. Following this expansion, the total capacity of the company will stand at 26500 MT. The company is awaiting the approval of environmental clearance from the government which we expect to obtain in the next coming months.”

Ashish Kacholia has increased his stake marginally in the company

Concall with the management tomorrow evening

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For FY23 management has guided for 10-15% revenue growth. Very difficult to predict EBITDA margins but will try its best to maintain or better EBITDA margins from current levels in FY23.

At current price of Rs1593 the stock trades at 33.5x FY22 P/E.

Capacity will more than double in the 2 years.

Concall recording below