Fundamental Analysis - Vishnu Chemicals Ltd.
🧪Specialty Chemicals?
Incorporated in 1989, Vishnu Chemicals Limited is in the business of manufacturing, marketing, and exporting Chromium chemicals and Barium compounds worldwide. The company is serving more than 12 industries across 60+ countries globally.
Incorporated in 1989, Vishnu Chemicals Limited is in the business of manufacturing, marketing, and exporting Chromium chemicals and Barium compounds worldwide. The company is serving more than 12 industries across 60+ countries globally.
⚡️Chairman, MD
Mr. Murthy is one of the key architects in envisioning the growth & expansion of the company since its inception. Over 3 decades, he has been instrumental in transforming the company from a single product becoming one of the leaders in specialty & fine chemicals.
Mr. Murthy is one of the key architects in envisioning the growth & expansion of the company since its inception. Over 3 decades, he has been instrumental in transforming the company from a single product becoming one of the leaders in specialty & fine chemicals.
💼Business Model -
VCL epitomizes manufacturing of high-performance specialty chemicals, with strong market leadership & an intelligent symphony of forward & backward integration to produce world-class products that are focused on diverse needs and aspirations of the customers.
VCL epitomizes manufacturing of high-performance specialty chemicals, with strong market leadership & an intelligent symphony of forward & backward integration to produce world-class products that are focused on diverse needs and aspirations of the customers.
👣Past Footprints -
Business Use Case -
The company primarily deals in 2 compounds.
Let's discuss them in detail below.
The company primarily deals in 2 compounds.
Let's discuss them in detail below.
✍️CHROMIUM -
(i) Product: Sodium Dichromate (SDC): Na2Cr2O7
VCL is the sole manufacturer of a variety of chromium-based chemicals in Southeast Asia. The flagship product is sodium dichromate, which finds application in industries such as pharma, leather, and dyes and pigments.
(i) Product: Sodium Dichromate (SDC): Na2Cr2O7
VCL is the sole manufacturer of a variety of chromium-based chemicals in Southeast Asia. The flagship product is sodium dichromate, which finds application in industries such as pharma, leather, and dyes and pigments.
(ii) They have a leading market position in India.
India's demand is 60000MTPA. (SDC & Derivatives)
(iii) 700,000 MTPA is the global demand for Chromium chemicals growing at 6% p.a.
Peers: Turkey, USA, South Africa
(iv) 3 units across Andhra Pradesh, Telangana, Chhattisgarh
India's demand is 60000MTPA. (SDC & Derivatives)
(iii) 700,000 MTPA is the global demand for Chromium chemicals growing at 6% p.a.
Peers: Turkey, USA, South Africa
(iv) 3 units across Andhra Pradesh, Telangana, Chhattisgarh
(v) Chromium chemicals serve several industries boosting the market growth due to the benefits of untarnished, uniform, and corrosion-resistant properties.
(vi) Derivatives: Basic Chrome Sulphate, Chrome Oxide Green, Chromic Acid, Potassium Dichromate, White Sodium Sulphate
(vi) Derivatives: Basic Chrome Sulphate, Chrome Oxide Green, Chromic Acid, Potassium Dichromate, White Sodium Sulphate
(vii) Industries it caters to - Pharmaceuticals, Automobiles, Pigments & Dyes, Leather, Plastic masterbatches, Ceramic glazes, Tiles, Electroplating, Refractories, Wood Preservative, Paper pulping, etc.
✍️BARIUM -
(i) Product: Barium Carbonate- BaCO3 (40% Market share in India) Local demand is about 35,000 MTPA.
Other players have less than 1/10th of VCL’s current capacity.
(ii) The global BaCO3 market is $575Mn growing at a 3.4% CAGR. Global Peers: Belgium, China.
(i) Product: Barium Carbonate- BaCO3 (40% Market share in India) Local demand is about 35,000 MTPA.
Other players have less than 1/10th of VCL’s current capacity.
(ii) The global BaCO3 market is $575Mn growing at a 3.4% CAGR. Global Peers: Belgium, China.
(iii) The company produces the best quality and specification due to the technology it has acquired.
(iv) Applications: Ceramics, tiles, glazes, bricks, refractories, caustic soda industry, speciality glass, luminescent compounds, etc.
(iv) Applications: Ceramics, tiles, glazes, bricks, refractories, caustic soda industry, speciality glass, luminescent compounds, etc.
(v) Growth triggers - The Construction and real estate industries are well positioned and have witnessed significant growth. The rising preference for luxury living has increased the demand for ceramic tiles, which has fueled the demand for barium carbonate.
(vi) Margins have increased and are likely to sustain as -
China +1 made them a preferred vendor globally, China's internal consumption of baryte has increased in drilling in their Oil & Gas industry. Chinese Yen has largely appreciated over the last 10 years.
China +1 made them a preferred vendor globally, China's internal consumption of baryte has increased in drilling in their Oil & Gas industry. Chinese Yen has largely appreciated over the last 10 years.
💡NEW PRODUCTS -
Introduced 4 new products: chromic acid, chrome oxide green, sodium sulphate & potassium dichromate.
They basically expanded their end-user industry base to more than 15 industries, including masterbatches, refractories, wood preservatives, paper, and pulp.
Introduced 4 new products: chromic acid, chrome oxide green, sodium sulphate & potassium dichromate.
They basically expanded their end-user industry base to more than 15 industries, including masterbatches, refractories, wood preservatives, paper, and pulp.
🌎Geographical Presence -
VCL has a leading position in India, operates in a market with substantial barriers to entry. They have the ability to pass the rise in input prices & freight costs.
Nearly half of revenue comes from export markets (America + Europe > 50% of exports)
VCL has a leading position in India, operates in a market with substantial barriers to entry. They have the ability to pass the rise in input prices & freight costs.
Nearly half of revenue comes from export markets (America + Europe > 50% of exports)
Geo-political problems:
“We have a strong peer in Russia who is having challenges to produce and export the chemicals out of Russia at the moment. So, that has definitely supported overall demand environment globally.”
“We have a strong peer in Russia who is having challenges to produce and export the chemicals out of Russia at the moment. So, that has definitely supported overall demand environment globally.”
BROWNIE POINTS -
✅Expansion - Historically, they focused on 2 compounds, this exposed them to uncertainty regarding both volumes and pricing.
In 2019, VCL introduced 4 new products that helped it expand the addressable end-use market.
✅Expansion - Historically, they focused on 2 compounds, this exposed them to uncertainty regarding both volumes and pricing.
In 2019, VCL introduced 4 new products that helped it expand the addressable end-use market.
✅Backward Integration - Their backward-integrated Soda Ash unit became operational at the Vishakhapatnam in January 2022.
The plant follows a unique process, developed in-house, and uses by-products from other processes to manufacture soda ash.
The plant follows a unique process, developed in-house, and uses by-products from other processes to manufacture soda ash.
✅Sustainable Margins - They foresee an improvement of 300-400 basis points in EBITDA over the year on the Chromium side because of Backward integration kicking from this financial year.
✅In progress CAPEX for Chromium Compounds - Debottlenecking operations at the existing plant, which will lead to an increase in capacity by nearly 10,000 TPA amid an expected surge in demand which will be completed by next quarter. They witness a volume surge of atleast 10% YOY.
✅In the intermediate stage: to set up solar power capacity at the subsidiary unit under the long-term power contract (OPEX) model. Expect savings of ~15% on energy costs per month.
NEW PRODUCT LAUNCH 🥳
👉This niche product is a very big launch as it is not manufactured by anyone in India. It is an import substitute and is used in automobile paints as a filler.
👉It will result in volumes going up by nearly 30% from 60,000 tonnes to 90,000 tonnes.
👉This niche product is a very big launch as it is not manufactured by anyone in India. It is an import substitute and is used in automobile paints as a filler.
👉It will result in volumes going up by nearly 30% from 60,000 tonnes to 90,000 tonnes.
👉Globally product comes 70% from China and 30% from Italy. Italians are producing higher-grade quality. VCL aims at offering the same superior quality and they are very confident about achieving those qualities. 💪
👉Earlier the Indian paint manufacturers were relying on international producers for these chemicals.
👉There is a huge demand for this product globally.
👉The new capacity for this product would be 30,000 tonnes, so from 60,000 tonnes, we will be at 90,000 tonnes from FY24.
👉There is a huge demand for this product globally.
👉The new capacity for this product would be 30,000 tonnes, so from 60,000 tonnes, we will be at 90,000 tonnes from FY24.
⚡️CAPEX Plan -
For FY 23, they have CAPEX plans both on the Chromium and the Barium chemical side.
On the Barium chemicals, they’re very excited to venture into a new product which is an import substitute in India. They also expanding capacities in the Barium segment.
For FY 23, they have CAPEX plans both on the Chromium and the Barium chemical side.
On the Barium chemicals, they’re very excited to venture into a new product which is an import substitute in India. They also expanding capacities in the Barium segment.
Total Capex this year will be approx Rs. 120 crores.
For Barium -
Rs. 90 crores for a new product in our Barium chemistry. It is precipitated Barium sulfate mainly used as a filler in the paint industry. (90 crores will be partially funded by debt & equity)
For Barium -
Rs. 90 crores for a new product in our Barium chemistry. It is precipitated Barium sulfate mainly used as a filler in the paint industry. (90 crores will be partially funded by debt & equity)
For Chromium -
Balance Rs. 30 crores is in Chromium chemicals business which will increase capacity from 70,000 tonnes to 80,000 tonnes.
Balance Rs. 30 crores is in Chromium chemicals business which will increase capacity from 70,000 tonnes to 80,000 tonnes.
🚩Risks Ahead -
❎Company has its operations spread across the world. Thus, making it exposed to the risk of fluctuation in the exchange rate.
❎They are exposed to risks attached to changes in various statutes, laws, and regulations.
❎Company has its operations spread across the world. Thus, making it exposed to the risk of fluctuation in the exchange rate.
❎They are exposed to risks attached to changes in various statutes, laws, and regulations.
❎They operate in working capital-intensive industries. Thus, inadequate funds might have an adverse impact on the company’s growth plan.
❎The company faces stiff competition from domestic as well as international players.
❎The company faces stiff competition from domestic as well as international players.
📊Financial Metrics -
P/E : 21.06 (Median 5 Years: 13.25)
EV/EBIDTA : 12.51 (Median 5 Years: 8.01)
Market Cap to Sales : 1.88
ROCE : 22.5 %
ROE : 29.4 %
They are targeting Debt/Equity less than 1:1 by March 23.
P/E : 21.06 (Median 5 Years: 13.25)
EV/EBIDTA : 12.51 (Median 5 Years: 8.01)
Market Cap to Sales : 1.88
ROCE : 22.5 %
ROE : 29.4 %
They are targeting Debt/Equity less than 1:1 by March 23.
They aim at > 30% ROC in the coming years.
OPM : 13.9 %
Sales growth 5Years : 15.6 %
Profit Var 5Yrs : 64.8 %
Promoter holding : 75.0 %
(Promoters have pledged 36.41% of their holding.)
OPM : 13.9 %
Sales growth 5Years : 15.6 %
Profit Var 5Yrs : 64.8 %
Promoter holding : 75.0 %
(Promoters have pledged 36.41% of their holding.)
Management -
(i) “We are very positive given the order book in general demand environment, we are very confident to maintain this EBITDA margin, we are expecting a further improvement given that our backward integration is going to come online in the coming quarter.
(i) “We are very positive given the order book in general demand environment, we are very confident to maintain this EBITDA margin, we are expecting a further improvement given that our backward integration is going to come online in the coming quarter.
(ii) With that being said I think we are very confident in improving EBITDA, not just EBITDA but also on the top-line given the order book in both the verticals.”
Q4 & FY22 is the best ever quarterly & annual performance. Domestic & export sales grew by 56% & 58% respectively.
Q4 & FY22 is the best ever quarterly & annual performance. Domestic & export sales grew by 56% & 58% respectively.
Disclaimer -
Pointers have been taken from the company's website and other investor forums. This info is shared for learning purposes only.
Do your own due diligence before investing. 💪
Pointers have been taken from the company's website and other investor forums. This info is shared for learning purposes only.
Do your own due diligence before investing. 💪
Thanks for suggesting me to read this company. @nid_rockz.
It was worth reading, amazing guidance and future prospects.
It was worth reading, amazing guidance and future prospects.
✅Ace investor Mr Ashish Kacholia continued to hold 4% + in the company
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