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Fairchem speciality - decent results.
Sales at 403 cr. Down 10% year over year but up 3% sequentially.
18.3% operating margins vs 20.0% year over year.
Overall EPS is 45 for FY20 vs 24 for FY19.
Sales at 403 cr. Down 10% year over year but up 3% sequentially.
18.3% operating margins vs 20.0% year over year.
Overall EPS is 45 for FY20 vs 24 for FY19.
Results in oleo and nutraceuticals segment looks really promising. Revenues up 50% year over year and 10% sequentially.
In a recent report, McKinsey had highlighted this segment as a huge opportunity for India, to take away market share from China.
In a recent report, McKinsey had highlighted this segment as a huge opportunity for India, to take away market share from China.
The operating results for oleo and nutraceuticals are even better. Up 200% year over year and 50% sequentially.
Looks like this segment is coming of its own and likely to grow significantly in future.
Looks like this segment is coming of its own and likely to grow significantly in future.
This is the business that, over the last 10 years, has grown revenues CAGR by 22% and EPS by 47%, generating an ROE of 21%.
Capacity was almost doubled in the 2018.
Customers include BASF, archer daniels, Cargill, asian paints etc.
Capacity was almost doubled in the 2018.
Customers include BASF, archer daniels, Cargill, asian paints etc.
Aroma chem business seems to have been a bit muted.
Sales are down 20% year over year but flat sequentially.
Likely, part of topline last year was driven by some short term pricing opportunities, that boosted the topline.
Sales are down 20% year over year but flat sequentially.
Likely, part of topline last year was driven by some short term pricing opportunities, that boosted the topline.
Operating results in aroma chemicals are more impacted. Down 45% year over year and 20% sequentially.
Privi is one of the leading manufacturers of aroma chemicals in India. Starting with just 2 products, it manufactures more than 50 today.
Privi is one of the leading manufacturers of aroma chemicals in India. Starting with just 2 products, it manufactures more than 50 today.
Privi competes with global.players like IFF, DRT, and Renessenz - top 4-5 players control 80% of global supply capacities.
Need for improving operating margins in the business. One of the levers that the company is pulling is raw material substitution.
Need for improving operating margins in the business. One of the levers that the company is pulling is raw material substitution.
Replacing GTO with CST.
The former is higher cost, procured through spot contracts leading to more volatility.
The latter is.more cost effective and procured through traditional annual contracts.
The former is higher cost, procured through spot contracts leading to more volatility.
The latter is.more cost effective and procured through traditional annual contracts.
Cash flows CFO - there is a startling improvement in FY20 CFO numbers.
Cash flows are up 12x at 247 cr vs 21 cr last year.
There are 2 one-time items here. 40 cr in insurance payments as well as benefit of reduced taxes (25% average tax rate in FY20 vs 39% in FY19).
Cash flows are up 12x at 247 cr vs 21 cr last year.
There are 2 one-time items here. 40 cr in insurance payments as well as benefit of reduced taxes (25% average tax rate in FY20 vs 39% in FY19).
Even adjusted for these two items, there is huge improvement in CFO. Primarily driven by reduction in receivables.
Receivables down to 267 cr in FY20 vs 331 cr in FY19. Wow!
Inventories are flat year over year.
Payables are down to 156 cr in FY20 vs 214 cr in FY19.
Receivables down to 267 cr in FY20 vs 331 cr in FY19. Wow!
Inventories are flat year over year.
Payables are down to 156 cr in FY20 vs 214 cr in FY19.
Overall, working capital days are down from 131 days to 107 days.
Creditor days down from 58 to 35.
Inventory days down from 99 to 82.
Receivables days down from 90 to 60.
Creditor days down from 58 to 35.
Inventory days down from 99 to 82.
Receivables days down from 90 to 60.
What is remarkable is that most of the cash flows have been plowed back into CapEx.
Capacity expanded from 495 cr in FY19 to 700 cr in FY20. Another 50 cr in cwip. That's a 50% capacity expansion, largest ever done. Prior CapEx was primarily from privi acquisition.
Capacity expanded from 495 cr in FY19 to 700 cr in FY20. Another 50 cr in cwip. That's a 50% capacity expansion, largest ever done. Prior CapEx was primarily from privi acquisition.
RoOE has improved to 24% vs 16% last year. RoCE is 21% vs 17% last year.
Debt levels are reasonable. While absolute debt has gone up, the debt to equity ratio is deon from 0.8 to 0.7
Looks like CapEx funding is a mix of internal accruals (mostly) and a little debt.
Debt levels are reasonable. While absolute debt has gone up, the debt to equity ratio is deon from 0.8 to 0.7
Looks like CapEx funding is a mix of internal accruals (mostly) and a little debt.
Most of the CapEx is happening in Privi (rather, has already happened). Looks like the business is ona war footing to show improved performance in future esp. when it's being upended by its younger sibling, Adi, in current results.
Aroma business could become a huge cash flow machine in the coming years.
The recent decision to demerge privi and adi also seems to be driven from unlocking vue in both businesses.
In hindsight, there were not too many (if at all) synergies between the businesses.
The recent decision to demerge privi and adi also seems to be driven from unlocking vue in both businesses.
In hindsight, there were not too many (if at all) synergies between the businesses.
Different products, different managements, different management styles, separate production facilities etc.
The demerger scheme gives an opportunity to Adi to grow really big, while enabling Privi to use its scale to demonstrate operating leverage.
The demerger scheme gives an opportunity to Adi to grow really big, while enabling Privi to use its scale to demonstrate operating leverage.
Final hearing is scheduled for June 30, 2020. The company has filed petition for approval to NCLT, which was admitted on June 12.
Fairchem is a HOLD for me. This could be a steady wealth creator in future.
Valuations not not expensive. IMHO, The current steady state EPS base is now 12-13 quarterly, which puts it at a 12 PE.
Valuations not not expensive. IMHO, The current steady state EPS base is now 12-13 quarterly, which puts it at a 12 PE.
