We are pleased to inform you that our Hidden Gem stock of August 2015 - Chemfab Alkalis Ltd (BSE Code: 506894, NSE Code: CHEMFALKAL) which was released on 6th Sept'15 has given absolute returns of 267% to our Hidden Gems members in period of 1 year. Our team suggested Buy on Chemfab Alkalis Ltd at average price of Rs. 90.80 on 06 Sept'15 with a target price of Rs. 170, stock has already achieved its target price in matter of 10 months and we suggested our members to continue to hold the stock. Chemfab Alkalies stock made its 52 week high of Rs. 347.70 today and closed at Rs. 332.55 on NSE giving absolute returns of 267% to our Hidden Gems members in period of 13 months.
Company has posted strong set of numbers in June 2016 quarter, net profit of Chemfab Alkalie rose 294.27% to Rs 6.19 crore in Jun'16 as against Rs 1.57 crore during the previous quarter ended June 2015. Total income from operations rose 32.87% to Rs 30.48 crore in the quarter ended June 2016 as against Rs 22.94 crore during the previous quarter ended June 2015.
Recently the company has commenced its commercial operations by producing and dealing in the product Industrial Grade Salt at its Mariyur Unit on August 24, 2016.
As per the management, the company plans to double the company’s capacity in next 2 to 3 years. The company is planning to raise the capex of Rs 50 crore next year for expansion purposes via inter accruals. Presently company’s capacity is 100 tonnes per day and is almost utilized fully.
We suggested our members to continue to hold the stock in our Hidden Gems Flash Back report released on 1st August 2016. We expect the company to post strong set of numbers in 2nd quarter which is scheduled to release on 3rd Nov'16. If company manages to post similar performance like that of 1st quarter, we can see significant upside in the stock from current levels.
Below is the summary of Chemfab Alkalies Ltd shared by our team under Hidden Gem stock of August'15 released on 06th September 2015.
Note: This report is shared only for the purpose of information and not an investment advice. Kindly carry out your own due diligence in case of investment in Chemfab Alkalies.
- Caustic Soda Lye in two grades (33% & 48%)
- Liquid Chlorine
- Hydrogen Gas
- Hydrochloric Acid
- Sodium Hypochlorite / Bleach Liquor
- Barium Sulphate
According to India Chlor Alkali Market Forecast & Opportunities, 2019, the market for chlor alkali in India is projected to exhibit a CAGR of around 7% during 2014-19. The market is expected to witness high penetration rate in the Western and Northern regions of the country. The market, though highly fragmented at present, is gradually moving towards consolidation, particularly with the entry of foreign players and expansion in distribution network of existing players. Among the three market segments, caustic soda held the highest revenue share, followed by chlorine and soda ash segments.
4. Peer Group Comparison:
5. Key Concerns & Risks:
i) The Rupee depreciation during the year will make imports cheaper, resulting in increased flow of caustic soda imports into the country thereby impacting company’s product realizations.
ii) International caustic prices were at USD 330-380 per MT CIF levels during the year and are expected to remain in this band in the short to medium term, any drop in prices below USD 330 will have a negative impact on company’s realizations. On the chlorine utilization front, slow demand growth continued to have an adverse impact on the Industry.
iii) Dependence on the grid power continues to be a risk though the Puducherry power scenario remains reasonably stable but with the cost of power continuing to be a concern. The Company is working with the Puducherry Government for the implementation of open access which would help de-risk our power sourcing.
(as on 06 Sept'15)
i) Chlor-Alkali is the basic Heavy Chemical Industry, manufacturing Caustic Soda, with Chlorine, Hydrogen, Sodium Hypo Chlorate and Hydro Chloric Acid as by-products. Overall, the Financial Year 2014-15 was an average year for the Industry, primarily due to the fall in international caustic prices which averaged during the year between USD 320 – 340 per MT CIF. International caustic prices have now moved to USD 360-380 per MT CIF levels and are expected to remain in this band in the medium term which will have a positive impact on company’s realizations.
ii) Caustic Soda finds major application in diverse industries, such as soap & detergents, pulp & paper and textile processing among others. Chlorine is produced as a by-product during caustic soda production and is widely used during PVC manufacturing, drinking water disinfection and pharmaceutical production. With the rebound in the country’s GDP, the demand for caustic is likely to grow strong which will help company to boost its revenue growth with higher capacity utilization. However, slower chlorine demand is expected to continue to impact the capacity utilisation of the company.
iii) In 2014, company introduced new BiTAC® Electrolysers from CEC, Japan for the first time in the country. The new Plant was commissioned during August 2014, and is expected to result in savings in energy consumption to the tune of 30% to 40%. Company has also replaced its old caustic concentration plant with a new plant which was commissioned in Mar’15. These initiatives will help company to improve its profit margins significantly with increase in revenues going forward.
iv) With the rebound in the country’s GDP, the demand for caustic is likely to grow strong. However, slower chlorine demand is expected to continue to impact the capacity utilisation of the industry. The investments and efforts taken by the Company during last financial year are expected to result in significant savings in its manufacturing costs, especially power cost.
v) Company’s EBITDA and PAT margins are expected to improve significantly considering investments and efforts taken by the Company during last financial year which will result in significant savings in its manufacturing costs, especially power cost.
vi) Chemfab Alkalis is virtually debt free with reserves of Rs. 125 crores in its books which is much more than the company’s current market capital of Rs. 87 crores. Promoter’s shareholding is at 75% without pledging any shares and rest is held by non-institutional investors. FII and DII shareholding is nil in the company.
vii) Company awaits the statutory clearances for its expansion plans and a favourable decision on its appeal before the National Green Tribunal. Company has also made plans for venturing into newer areas for Chlorine utilisation. The new Salt fields which were acquired are slated to commence production shortly. With all these measures, management is confident that company is poised for a great leap ahead and achieving good results in the forthcoming years.
viii) Management has rewarded shareholders by paying regular dividend in the past. For FY 14-15, company has declared dividend of Rs. 1.25 per share.
ix) As per our estimates, Chemfab Alkalis Ltd can deliver bottom line of 13.5 crores for full financial year 2016, annualized EPS of Rs. 14.7 with forward P/E ratio of 6.4X for FY16. Valuation looks attractive for a debt free company with expected expansion in its profit margins.
x) On equity of Rs. 4.59 crore, the estimated annualized EPS for FY 15-16 works out to Rs. 14.7 and the Book Value per share is Rs. 142.86. At current market price of Rs. 94.40, stock price to book value is 0.66.
Considering recent initiatives taken by the management in terms of improving operational efficiencies and company’s expansion plans to drive business growth, Saral Gyan team recommends “Buy” on Chemfab Alkalis Ltd at current market price of Rs. 94.40 for target of Rs. 170 over a period of 12 to 24 months.
- 70% at current market price of 94.40
- 30% at price range of 82-85 (in case of correction in stock price in near term)
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