Tag: specialty chemicals

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Why You Should Look Into Chemical Companies for the Long Term

India is one of the fastest-growing markets for all types of chemical products. As per recent estimates, our country ranks sixth in the world in chemical sales and contributes 3% to the global chemical industry! Numerous companies thrive in this sector, which makes it highly competitive. The shares of leading chemical manufacturers have surged multifold over the past year. In this article, learn more about the Indian chemical industry and its growth prospects.

India’s Chemical Industry – An Overview

The chemical industry of India is extremely diversified and covers more than 80,000 commercial products. They can be broadly classified into:

  • Bulk chemicals – Produced in large quantities to meet the ever-growing demand across various industries. Examples include ammonia, sulfuric acid, and sodium hydroxide. 
  • Specialty chemicals – Used as ingredients in finished products and to improve manufacturing processes. It constitutes ~21% of the total chemicals market in India.
  • Agrochemicals – Chemical products or pesticides used in agriculture. India is the fourth-largest producer of agrochemicals after the US, Japan, and China. 
  • Petrochemicals – The chemicals obtained from petroleum by refining. Products made from petrochemicals include plastics, paints, soaps, detergents, synthetic fibers, and drugs.
  • Polymers – Natural and synthetic polymers touch almost every aspect of modern life. Some notable examples include textile fibres, pharma products, auto parts, coatings, toys, bottles, etc. India is the third-largest consumer of polymers in the world.
  • Fertilizers – Supplied to crops to increase their productivity. 

Our country ranks ninth in export and sixth in import of chemicals (excluding pharmaceutical products) globally. The demand for our chemical products is expected to grow at a CAGR of 9% during 2020-25. Moreover, India accounts for ~16% of the world’s production of dyestuffs and dye intermediates. 

Factors that Drive Growth in the Chemical Industry

  • There has been a surge in demand from end-user industries such as agriculture, food processing, home care, and pharmaceuticals. To cater to the rising demand, Indian chemical companies spend ~1% of their revenue on research and development (R&D) activities. There is significant export potential for agrochemicals and personal/home care products as well.
  • The Central and state governments are accepting investment applications in the chemical sector, which will help boost manufacturing and employment. As per estimates, the Indian chemical and petrochemicals sector will receive investments of nearly Rs 8 lakh crore by 2025. 
  • Also, the government allows 100% foreign direct investment (FDI) under the automatic route in the chemicals sector (except in the case of certain hazardous chemicals). A large number of foreign institutional investors (FIIs) have picked up stakes in prominent chemical manufacturers. Moreover, the rising environmental concerns and strict government actions have taken the focus away from China (the world’s largest producer of chemicals). One must always keep a close watch on Chinese policy changes while tracking the chemical industry.
  • In May 2021, the Union Cabinet approved a PLI scheme for the National Programme on Advanced Chemistry Cell Battery Storage. The scheme outlay of Rs 18,100 crore is intended to establish 50 gigawatt-hour (GWh) of advanced cell chemistry and 5 GWh of niche advanced cell chemistry capacity. The Centre also has plans to introduce a production-linked incentive (PLI) scheme to promote the domestic manufacturing and exports of agrochemicals. 
  • The government has started various initiatives such as mandating BIS-like certification for imported chemicals. This move will help prevent the dumping of cheap and substandard chemicals into the country. 
  • The Finance Ministry has allocated Rs 233.14 crore under the Union Budget 2021-22 to the Department of Chemicals & Petrochemicals for various development activities. This will help improve efficiency and rural penetration. 

The Way Ahead

As per a report from India Brand Equity Foundation (IBEF), the Indian chemical industry stood at $178 billion in 2019. It is estimated to reach $304 billion by 2025, registering an annual growth rate of 9.3%. Moreover, the specialty chemicals sector is expected to increase at a CAGR of 12.4% to $64 billion within the next four years. No wonder there are a large number of players in this industry!

Tata Chemicals, Laxmi Organic Industries, Navin Fluorine International, Vinati Organics, Aarti Industries, Alkyl Amines, PI Industries, UPL, Deepak Nitrate, Clean Science and Technology are some of the leading players in India’s chemical sector. Back in May 2021, marketfeed had prepared a detailed analysis on the fertilizer and agrochemicals companies in our country. You can read it here. 

The companies mentioned above are focusing extensively on enhanced R&D capabilities to launch new and improved offerings. Indian chemical companies perform relatively well due to highly qualified/skilled manpower and low-cost manufacturing capabilities. Amidst the Covid-19 pandemic and anti-China sentiments, India is well-suited to take advantage of supply chain disruptions. Currently, companies are also focusing on green chemistry and sustainability to reduce the impact of chemicals on the environment and human health. The future of the chemical sector is bright indeed.

What are your views on the Indian chemical industry? Which are the chemical companies you have invested in? Let us know in the comments section of the marketfeed app.

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Ami Organics IPO: All You Need To Know

ami organic

The IPO frenzy continues! This time it is one of the many IPO stocks to debut this year. We are talking about Ami Organics. Ami Organics has announced its IPO starting September 1 (Wednesday) and closes 2 days later on September 3 (Friday). In this piece, we discuss the business model of Ami Organics, its finances, and its sustainability in the long term. 

Business Model

  • Ami Organics is a Research and Development driven pharmaceutical company that manufactures mainly two things – Pharmaceutical Intermediates and Speciality Chemicals. 
  • Pharma Intermediates are used to manufacture Active Pharmaceutical Ingredients (APIs), which are in turn used to manufacture medicines or drugs. Specialty Chemicals on the other hand can be used for other purposes like manufacturing agrochemicals or fine chemicals. 
  • The company has developed and commercialized over 450 Pharma Intermediates for APIs across 17 key therapeutic areas since inception and NCE, with a strong focus on R&D across the select high-growth high-margin areas. These include anti-retroviral, anti-inflammatory, anti-psychotic, anti-cancer, anti-Parkinson, anti-depressant, and anti-coagulant medicines. Therapeutic areas like anti depressants, anti-retrovirals, and anti-coagulants contributed to nearly 57% of total revenue 
  • In fiscal 2021, the Pharmaceutical Intermediates segment contributed close to 88.4% to total revenue of Rs 301.1 crore. The remaining came from Speciality Chemicals and other sources. 
  • The company’s revenue is highly dependent on exports. Its revenues from exports have grown at a CAGR of 21.84% between Fiscals 2019 and 2021. In fiscal 2021, close to ~51% of the total revenue of the company came from exports. The highest going to Italy. 
  • The company is also amply dependent on imports for raw materials. In 2021, 26.7% of total raw material purchases were from imports on which the company spent Rs 51.02 crores. Close to 9.39% of the total import purchases came from China. 
  • Its top five customers account for 44.6% of total revenue, while the top 10 forms 60.9% of it.
  • The company had one plant initially in Sachin GIDC, Surat, Gujarat. Recently it has acquired two plants of Gujarat Organics Limited, Ankleshwar and Jhagadia in Gujarat, for Rs 93 crore. This took the total manufacturing capacity up to 6,060 million tonnes per annum.

Finances 

The total revenue for fiscal 2021 was Rs 340 crore. However, this does not include the revenue generated from the acquisition of two new plants at Ankleshwar and Jhagadia. The Net Profit of the company grew at a CAGR of 32.44% over a period of three years to Rs 53.9 crore. 

IPO in a Nutshell

Conclusion

Ami Organics as a company has a strong and diversified product portfolio supported by strong R&D. The company also has patented many formulations. A patent is an exclusive right granted for an invention, it also gives the owner the legal right to exclude others from making, using, or selling an invention.

The company has a strong presence in developed pharmaceutical markets like Europe, the US, and China. Moreover, the company operates in a market that has high entry barriers. Manufacturing specialty chemicals and pharmaceuticals require lots of licenses and approvals from domestic and international organizations. 

Supported by healthy financial performance, Ami Organics has experienced sustained growth in terms of Revenue, Profit After Tax and Total Assets acquired. It has maintained a robust financial position with a strong balance sheet and increased profitability. Taking a closer look at its ‘Financial Performance’, we see that there was a major spurt in growth between fiscals 2020 and 2021. The strong balance sheet and positive operating cash flows coupled with low levels of debt can enable it to expand in the developing pharmaceutical sector in India. 

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Chemplast Sanmar Ltd IPO: All You Need to Know

The IPO mania continues on Dalal Street, as four public issues open for subscription this week. Chemplast Sanmar has launched its three-day initial public offering (IPO) today— August 10. It will be the fifth specialty chemical manufacturer to go public this year! In this article, we explore what the company does and learn more about its IPO.

Company Profile – Chemplast Sanmar Ltd

Chemplast Sanmar Ltd (CSL) is a leading manufacturer of specialty chemicals based in Chennai. Established in 1985, the company produces specialty paste PVC resin, starting materials, and intermediates. Their products are extensively used in the agrochemical, pharmaceutical, and fine chemicals sectors. CSL also produces chemicals such as caustic soda, hydrogen peroxide, refrigerant gas, and industrial salts.

CSL is the largest manufacturer of specialty paste polyvinyl chloride (PVC) resins in India on the basis of installed production capacity (as of December 2020). The product has multiple end-use applications such as making hand gloves, conveyor belts, artificial leather, flooring tiles, etc. The company is also the largest manufacturer of hydrogen peroxide and the third-largest manufacturer of caustic soda in South India. Recently, CSL acquired a 100% equity stake in Chemplast Cuddalore Vinyls Ltd (CCVL)— the second largest manufacturer of suspension PVC resin in India.

They operate three manufacturing facilities situated at Mettur, Berigai, and Cuddalore in Tamil Nadu and one unit at Karaikal in Puducherry. Chemplast Sanmar is part of Sanmar Holdings Ltd (SHL), one of the oldest and most prominent corporate groups in South India. Fairfax India Holdings Corp, led by Indian-Canadian billionaire businessman Prem Watsa, holds a 43% stake in SHL Chemicals Group. CSL has a strong management team with extensive experience in the chemicals industry.

About the IPO

Chemplast Sanmar aims to raise Rs 3,850 crore through its initial public offering (IPO). The public issue opens on August 10 and closes on August 12. The price band for the IPO has been fixed at Rs 530-541 per share. 

The fresh issue of shares (of the face value of Rs 5 each) aggregates to Rs 1,300 crore. The IPO also consists of an offer for sale (OFS) by existing promoters that aggregates to Rs 2,550 crore. Individual investors can bid for a minimum of 27 equity shares (1 lot) and in multiples of 27 shares thereafter. You will need a minimum of Rs 14,607 (at the cut-off price) to apply for this IPO. The maximum number of shares that can be applied by a retail investor is 351 equity shares (13 lots). 

Chemplast Sanmar will utilise the net proceeds from the IPO for two main purposes:

  1. Early redemption of non-convertible debentures (NCDs) of up to Rs 1,238.3 crore. The company had issued NCDs aggregating to Rs 1,270 crore of seven-year tenure and an interest rate of 17.5% per annum.
  2. To meet the required funds for general corporate purposes.

The total promoter holding in the company will decline sharply from 100% to 54.99% post the IPO.

Financial Performance

CSL’s revenue increased substantially by 201% YoY to Rs 3,815 crore in FY21. The significant jump in revenue and net profit in FY21 is mainly on account of the acquisition of Chemplast Cuddalore Vinyls Ltd (CCVL) to improve its product offering. That is, CCVL’s financial results have been included in the consolidated figures. At the same time, the acquisition resulted in a sharp increase in its overall debt.

CSL posted a negative net worth of Rs -(1,865.6) crore in the previous financial year (FY21). [A company’s net worth or book value is the value of its assets after paying off its liabilities] The company recognized certain losses due to the acquisition of CCVL’s business worth Rs 3,313 crore in FY21. Chemplast Sanmar’s gross debt rose 62% YoY to Rs 2,110 crore in FY21. This is a major red flag.

Looking at the positives, EBITDA margin has been strong in the range of 25-26% and cash flow generation has been healthy over the past three years.

Risk Factors

  • Chemplast Sanmar has incurred significant indebtedness. Its total outstanding borrowings stood at Rs 2,016.9 crore as of March 31, 2021. The company’s lenders have imposed certain restrictive conditions under its financial agreements. This could limit CSL’s ability to pursue its business and restrict the firm from planning or reacting to changes/trends in the industry.
  • The company’s intellectual property (IP) rights may not be adequately protected against third-party infringement.
  • The uncertainty surrounding the Covid-19 pandemic poses a threat to Chemplast Sanmar’s business operations and financial conditions. 
  • CSL faces foreign exchange fluctuation risks, which could adversely affect its financial results and cash flows.
  • The non-availability of credit ratings or a poor credit rating could restrict the company’s access to capital.
  • There are outstanding legal and regulatory proceedings involving CSL, CCVL, and its directors.
  • The sale of specialty paste PVC resin contributes nearly 58% to the company’s total revenue. A decline in the demand for this product could severely impact CSL’s overall performance.

IPO Details in a Nutshell

The book-running lead managers to the public issue are ICICI Securities, Axis Capital, Credit Suisse Securities, IIFL Securities, Ambit Pvt Ltd, BOB Capital Markets, HDFC Bank, and IndusInd Bank. Chemplast Sanmar Ltd had filed the Red Herring Prospectus (RHP) for its IPO on August 2, 2021. You can read it here.

Interestingly, CSL is returning to the stock exchanges after a gap of nine years. It was voluntarily delisted in May 2012 when it bought back shares of the face value of Rs 1 each from investors at Rs 15 per share. Its market cap was Rs 1,190 crore at the time of delisting in 2012. Now, the company is re-listing at a market cap of ~Rs 8,554 crore! It also seems like CSL’s promoters are selling a significant stake, which is not an encouraging sign for new investors.  

Conclusion

India is the fastest-growing market for specialty chemicals in the world. According to a report from India Brand Equity Foundation (IBEF), the Indian specialty chemicals industry is expected to grow at a CAGR of 11-12% over the next five years. It is expected to become a ~Rs 3 lakh crore market by 2025. Due to its diversified portfolio, Chemplast Sanmar is well-positioned to capture favourable industry trends. They have announced plans to expand manufacturing capabilities to cater to increasing demand for their products.

However, investors must be cautious about CSL’s high debt burden and negative net worth. The company has pledged its entire stake in CCVL (a vital subsidiary) in favour of Housing Development Finance Corp (HDFC). The company aims to pay off its debenture holders and reduce overall debt through the IPO proceeds.

CSL will be directly competing with leading chemical manufacturers such as PI Industries, SRF Limited, Finolex Industries, Navin Fluorine, and many more. They will be the fifth specialty chemical manufacturer to go public in 2021. As we can see, the industry is extremely competitive. Do consider the risks associated with CSL and come to your own conclusion.

What are your opinions on this IPO? Will you be applying for it? Let us know in the comments section of the marketfeed app.