Omkar Speciality and Chemicals 533317 : Approved Demerger to create value for long term investor Buy at CMP of Rs 178 Target 1 year 250

About Company: OSCL primarily engaged in the production of Specialty Chemicals and Pharma Intermediates. It manufactures a range of Organic, Inorganic and Organo Inorganic Intermediates. The Inorganic Intermediates include Molybdenum derivatives, Selenium derivatives, Iodine derivatives, Cobalt derivatives, Bismuth & Tungsten derivatives and the organic intermediates include Tartaric acid derivatives and other intermediates. These products find applications in various industries like Pharmaceutical Industry, Chemical Industry, Glass Industry, Cosmetics, Ceramic Pigments and Cattle & Poultry Feeds.


OSCL is exporting products to Europe, Canada, Asia, South America and Australia. About 25% of revenue comes from export. 


The Company has basic research capabilities and has recently acquired M/S.RISHICHEM RESEARCH LTD., as a wholly owned subsidiary which is expected to provide a total R&D back-up to the Company for all its future expansion and diversification program

The Company has total 7 Units, of which 4 Units are located at MIDC, Badlapur (E), Dist: Thane, Maharashtra,

The locations of our Units are:
• Unit No.1– W-92(A), MIDC, Badlapur(E), Dist: Thane-421503, 
• Unit No.2– F-24, MIDC, Badlapur (E), Dist: Thane-421503,
• Unit No.3– B-34, MIDC, Badlapur (E), Dist: Thane- 421503, 
• Unit No.4– F-10/1, MIDC, Badlapur (E), Dist: Thane-421503, 
• Unit No.5– D-27, MIDC, Lote Parshuram, Tal-Khed,District Ratnagiri-.
• Unit No.6– Urdhwa Chemicals Co. Pvt. Ltd. C-4,MIDC, Lote Parshuram, 
• Unit No.7– Lasa Laboratory Pvt Ltd, Plot No. C-105, MIDC, Mahad, Dist. 

About the Merger and Demerger of company: In April-2016 OSCL decided to merge all subsidiaries in it and then decided to demerge in 2 separate companies viz
1. Omkar Speciality Chemicals limited
2. Lasa Supergenerics Limited ( To be listed as Lasa Lab Limited)

 Post merger - one of businesses – Veterinary API of OSCL to get Demerged into Lasa Supergenerics Limited . API Division’s turnover , as on March 31, 2015 was Rs. 71Crores, amounting to 26.8% of total turnover of OSCL. Demerger of the Veterinary API undertaking into Lasa Supergenerics Limited is primarily with intention of achieving operational efficiencies. All OSCL Shareholders are entitled to one Equity Share of face value Rs. 10 each of Lasa Supergenerics against each share in 1:1 ratio. Lasa Supergenics will get listed separately at NSE & BSE.



Financials Of Company: OSCL had achieved consolidated revenue of approx 265 crores with net profit of 24 crores resulting in EPS of approx Rs 12 in FY-14-15. In the year 2015-16 It has so far achieved turnover of  approx Rs 300crores with net profit of 26 crores  YTDQ3-20115-16 and based upon the revenue growth seen it could easily achieve yearly turnover of 375 crores with net profit of approx 32 crores.That would result in topline growth of 40% and net profit growth of 30% resulting in 2015-16 EPS of 16.
Current valuation : OSCL Share without demerger is available at PE multiple of 11 and going forward after demerger Lasa Super generics (LasaLab) would continue to grow at faster rate(30%-40%)pace at least for next 2-3 years  with higher profit margins in comparision to OSCL which should grow at 15-20% rate hence Lasa would attract higher PE multiple . 
As per my estimate by the time Lasa gets listed it would have achieved turnover of 100 crores(FY-15-16) with EPS of 5 .As per the declared figures of Lasa has already achieved turnover of 63 crores in H1-2015-16 with NP of Rs 6.2 crores and considering PE multiple of 15 it should get listed/traded at around Rs 75 whereas demerged OSCL should command price in range of Rs 120-130 considering EPS Of Rs 10 for year 2015-16.

Target price Justification  : At the end of year 2016-17 both the companies would grow and price can easily touch 90-100 for Lasa  and  Rs 150 for OSCL resulting in appreciation of 30% from suggested investment price (Rs178) of to be demerged OSCL.

Disclosure: I am personally holding  shares of the company.