Updated: Jun 6, 2022
In this Blog, I will be updating on whatever new information I have or thoughts about certain things.
Would like to share some pointers which I have learnt over the years to better understand businesses:
1. Companies with good profitability does not need to depend on external capital for growth
2. If the company uses internal accruals to fund growth , the Cost of fund goes down.
3. If the fixed assets of the company are quite old & fully depreciated, the EBIT margins would be quite good.
4. As manufacturing companies capacity utilization crosses 70%, operating leverage kicks in, leading to improvement in EBIDA margins.
5. The more the company is backward integrated, higher will be companies EBITDA and profitability
6. In a company manufacturing multiple products, if there is resource interdependence i.e. one product goes as raw material into others, it helps the company better handle tough times as they can easily change product mix.
Caustic Soda Lye Prices
Caustic Soda Flakes Prices
Welspun India Ltd- Q3FY22 Concall : There is a supply glut(oversupply) of home textiles in the US market. Even the complete shipment of Christmas order had not reached US market by the time of concall.
There is likely to be destocking for a couple of quarters before they start restocking again.
Sales is likely to suffer.
Thematic report on Indian Chemical Sector
Fluorination Sector - Thematic View On Navin Fluorine, SRF And Gujarat Fluorochemical: HDFC Securities
Initiating coverage on Indigo Paints by Edelweiss:
Excellent paper by James Montier of GMO capital on portfolio managers inclination to be compared against Index return rather than Absolute return.
CreditAccess Grameen out of woods after a long time:
Change in BSE Circuit limits/price bands from 07.02.22:
I was just curious to find out the filing fee paid by pharma companies to USFDA.
For ANDA(Formulations), it comes out to be ₹1.7cr and for DMF(API), it comes out to be ₹56 lakhs.
Book Reviews: One of the best book I have read in the recent past is: Richer, Wiser, Happier by William Green
The book is about the personality traits and what are the other habits successful investors have.
The best investors are not like other people. They are Iconoclasts, Mavericks and Misfits who see the world differently from the crowd and follow their own peculiar path, not just in the way they invest but in the same they think and live.
Some people in the race don't have the tribal gene of following others as they can think for themselves.
They are unemotional about their decisions, they can't be overly influenced by what other people think. The only way to beat the market is to diverge from the market.
The books covers the traits and journeys of some well-known and some not so well known names:
Sir Franklin Templeton, Howard Marks, Jean Marie Eveillard, Joel Greenblatt, Nick Sleep & Qais Zakaria, Charlier Munger etc
DCM Shriram Ltd- Q3FY22
Excellent result by DCM Shriram Ltd.
Revenue increased by 26% YoY
EBITDA increased by 46% YoY
PAT increased 38% YoY
Improved performance was led by their Caustic soda business. Caustic soda prices increased almost by 80% during the quarter while the increase in cost was not that much. While the Caustic soda volumes were up only by 8%, the value increase was 107%.
US Cotton textile import data; Source: Otexa
Despite high base, Indian exports continue to rise at an excellent pace for the month of Nov 2021.
Companies to benefit: Welspun India, Trident, Indo Count, Himatsingka etc
Commodity Chemical Prices
Excellent interview of the promoter of HP Adhesives(Recent IPO). She lost her husband early and built the business on her own and later on was joined by her son.
Blog on 'Indian Adhesive Industry': Link
Acetic Acid Prices
Companies: Jubilant Ingrevia, Laxmi Organics
Companies: Chemplast Sanmar etc
Caustic Soda Lye prices:
Caustic Soda Flakes Prices:
Companies: Meghmani Finechem, Gujarat Alkali, DCM Shriram etc
Notes from K R Choksey on site visit to Meghmani Finechem Facility recently.
Due to supply chain issues (China is now looking inward) and robust demand, companies are going for both backward integration to secure their supply chain as well as expanding their capacities to meet the demand.
All Commodity Chemical companies stock prices continues to fall for more than a month despite rising commodity prices and increasing spread.
Eg. Meghmani Finechem, Chemplast Sanmar, I G Petrochem, BEPL etc.
Looks like an opportunity to add.
The high prices of Caustic soda is confirmed by management of Gujarat Alkali in an interview yesterday.
Domestic Caustic Soda Price remained elevated even as Coal prices have corrected significantly
"An investor who can reduce a significant bit of allocation to stock markets near the peak of a bull run and further increase allocations when market starts to come off, progressively will make a far superior return on his portfolio over a longer run than a very smart and clever stock picker. Investing is as much as an art of capital allocation as it is an art of stock picking" from the book 'The PolyCycle Investor'
Very good video on India & its growth prospects reality
The other competitive solvents such as Toluene, MIBK, MEK, Acetone, Cyclohexane, etc. are getting replaced with the greener solvent Ethyl Acetate in the industrial applications. Ethyl Acetate is manufactured by Jubilant Ingrevia, Laxmi organics and other companies into Acetyl value chain.
This is predominantly due to the following:
• Faster evaporation of solvent helps in quick drying in end-use application
• Companies claim the bio-content of the raw material (Ethyl Acetate) from their manufacturing operations
• Eliminating the ‘dangerous substances’ tag from the product label of manufactured goods (where greener
solvents like Ethyl Acetate is used)
• Less toxicity of Ethyl Acetate when exposed to humans; Acceptable allowance of ETAC in the human body
is more than other solvents
• Optimum solubility in the solvent blends
Source: Laxmi Organics DRHP
After a dream run of Coal Prices, a plunge in prices driven by Chinese govt intervention.
Chinese commodity price database: Link below
L&T Technology came out with good numbers for Q2FY22. In the interview, the CEO talks about 3 key changes happening in the IT sector:
Companies are restructuring themselves
Growing need for Cybersecurity & ESG
The Great resignation in the US requiring the need for automation
Good video to understand Meghmani Finechem businesses!
Caustic soda prices continues to trend higher.
Electricity/Power cost is the major cost in manufacturing Caustic soda, other being salt, water and methanol.
Companies to benefit: Meghmani Finechem
India's is 4th largest manufacturer of caustic soda and has CAPTIVE POWER PRODUCTION OF 94MW. Also, the company in the last 3 years have done a capex of ₹956cr which got completed recently. Likely to benefit.
With Sintex struggling with its balance sheet issues, other plastic pipe players are ramping up the Water tank capacities. Eg, Prince Pipes, Astral Pipes, Apollo pipes etc. Another avenue for growth.
Market share capture by Indian Cotton Home textile exporters to US continues.
Below is the cotton import data by the US govt for the month of August 2021 compared with August 2020.
Cotton sheets grew 87.8% YoY
Cotton terry towels grew 56% YoY
Cotton Bedspreads grew 64.2%
Other cotton items grew 73% YoY
Source: Textiles and Apparel (trade.gov)
Companies to Benefit:
HEG Ltd- turnaround in performance in Q1FY21.
Graphite electrode prices have started moving up. It has moved up by 15-20%.
Company has got rid of its high cost inventory completely
Current capacity utilization stands close of 85%
Growing capacity utilization by end customers i.e. Steel companies
Steel prices at all time high
Excellent interview - Deepak Nitrite's Maulik Mehta - Love the way he accepts and explains his mistakes
Also, high shipping cost is helping the company as more and more domestic customers are procuring locally and ready to pay a premium.
Acetic Acid prices
Pthalic Anhydride Prices continues to rise.
Companies that benefits: Thirumalai Petrochem, IG Petrochem
Also, the raw material Ortho Xylene has risen quite a bit.
PVC prices continues the uptrend.
List of sector wise presentation by ICRA : Link
Iron ore prices are on a sharp falling streak. After touching a high of $220 on July 19th, 2021, the prices are now trending at $140 on 03 Sept 2021, a drop of 36% due to curb on steel production by China.
Companies going to be adversely affected: Godwari Power & Ispat, Sarda Energy
Howard Marks presentation on 'The truth about investing'
A good way to know about the upcoming IPO's fundamental and understanding the sector is by listening to the IPO Roadshow by the company's management team.
Goto Youtube--> Type 'trendlyne ipo roadshow'
You will get a list of such video presentations.
You can also try with other keywords such as 'trendlyne + name of the company' etc
PVC prices are on a uptrend again.
Companies to benefit: Chemplast Sanmar, Prince Pipes and other pipe manufacturers
India is one of the top formulation drug exporters in the world, its pharmaceutical industry relies heavily on imports of bulk drugs. As the industry matured and grew, Indian players graduated to the highly lucrative "formulation" part of the value chain compared to API.
Source: CII KPMG report on API; April 2020 (Page no 18)
The pricing pressure in the generic pharma business is due to:
Consolidation of supply chain
Faster ANDA approval by USFDA
Entry of lot of small and mid sized companies
While solid dosage forms have long been the largest segment, Sterile liquid(vials) are currently enjoying the highest growth.
WHEN THE PRICE OF A PRODUCT IS SAME FOR IMPORTED ONES AS WELL AS DOMESTICALLY MANUFACTURED ONES, THE DOMESTIC BUYERS WILL PREFER DOMESTIC MANUFACTURER INSTEAD OF AN IMPORTED ONES DUE TO THE BELOW REASONS(In the light of Anti dumping or other duties):
1. LOWER LOGISTICS COST
2. NO FOREX RISK
3. LESSER PAPERWORK
4. CAN ORDER SMALLER QUANTITIES
How does a branded player in any sector grow?
Increase the distribution: Need to make the product available across so that branding/marketing is effective
Introduce new SKUs(products) : Use the same distribution channel to push more products to increase revenue
Introduce products in adjacent segments : Think 'Tank' for Astral Pipes
Spend on marketing & advertisement
Eg. Polycab, Prince Pipes, Astral pipes, Havells etc
MDF & HDF prices have gone through the roof in the ongoing quarter(Q2FY22). Everyone is scrambling to get hold of the materials(MDF & HDF)
Companies to benefit: Greenpanel Industries Ltd, Rushil Decor, etc
Source: HIL Ltd Concall (time: Intial 5-10minutes of the call)