Bhageria Industries Limited (Face Value Rs 5) : A promising dye & dye intermediates chemical company cmp Rs 118-122 One year Target price Rs 175

 

Bhageria Industries Limited incorporated in 1989 is engaged in manufacturing of dye and dye-intermediates. The company has its plant located at Vapi and Boisar,Tarapur. Vinyl Sulphone, H-Acid and Gamma Acid are major products of the company. Nearly 30% of the production was exported worldwide to various clients including multinationals in year 19-20. Products are being exported to Korea, Japan, Taiwan, China, Germany, U.S.A & other European and African countries.

Vinyl Sulphone is commonly used as a reactive dye in textiles, leather and wood. It is also used as a coloring agent in paints, plastics etc. It exhibits advanced properties like bioconjugation and immobilization, hence has great applications in organic chemistry. Vinyl Sulphone is a sulphonyl compound used as an intermediary in various omics technologies like genomics, proteomics, and transcriptomics. It is a valuable chemical used in biomedical applications. Many research and development activities are carried out in the use of vinyl sulphone in pharmaceuticals as an anti-fungal agent. It has also been found suitable for the synthesis of Peptidomimetics which are biologically produced proteins for use in nano neuro pharmacology

Major Players: The major players in the vinyl sulphone market include Kiri Industries Limited (KIL), Bodal Chemicals Ltd., Akshar Chem India, Shree Pushkar Chemicals and Fertilizers Ltd., Atul Ltd.,

Products:

1. Dyes and Dye intermediates & Chemical Business

The Indian Dye and Dyestuffs Industry is an important aspect of the Indian Chemical Industry that significantly contributes to the latter’s growth. Moreover, growth of industries such as industrial paint, printing, plastic and tannery is further boosting the demand for dyes and dye intermediates for end-use applications. Additionally, the robust demand for dyes and dye intermediates from textile industry is anticipated, which would further steer growth in the Indian dyes and dye intermediates market. The Indian dyestuffs and pigments market, owing to increased urbanization, better technology, and growing population has also come a long way from being an import dependent market to one which is driven by exports. During April 2019-January 2020, exports of dyes increased 9.12%7 year-on-year to US$ 2.27 billion. The dyestuff industry is an important aspect of economic development in India. Dyes and pigments are used by almost every end-use industry, particularly textile, leather, plastic, and paper industries. The expansion of the textile industry is leveraging the market demand for dyestuff in India. The Indian dyestuff market is also expanding considerably owing to the increasing export volume to various major countries.The domestic market is also expected to grow significantly as international players would need alternate suppliers given the restrictions in China. Many international players are already turning to India.

Clientele: 

The Company’s key clients include brand-enhancing dyes and pigment manufacturers like Everlight Chemical Industrial Corporation, Huntsman International, Lonsen Kiri, Indo Colchem Pvt. Ltd., Bhavin Industries, Colourtex, Jay Chemical Industries Limited, Archroma and PT Sinar among others. 

Capex :

In 2019-20, Bhageria Industries generated 90 % of our overall revenues from the dyes and dye intermediaries business. Of the total, 70% revenues were derived from domestics and 30% from export.A brownfield capex of Rs. 100 crores spread over 2 years which is divided into 3 phases. In the first phase, it was backward integration, key inputs including Sulphuric Acid & Derivatives. During this phase, it started manufacturing from mid month of February 300 TPD of Sulphuric Acid & Derivatives at it’s Boisar, Tarapur plant. Sulphuric acid is a key material being purchased by the Company until 2018-19. The captive manufacture and consumption of sulphuric acid  is expected to widen the Company’s operating margin by 400 bps. This strategy is expected to strengthen revenues on the one hand and reduce costs on the other. While, in the second phase the focus will be on the expansion of the basket of dye intermediates. Under this phase, 4,500 MTPA capacity of J-Acid and Tobias acid will be manufactured at the Boisar,Tarapur plant, starting by the end of November 2020. And later, in the third phase will focus on the manufacturing of pigments intermediates at a capacity of 4,500 MTPA, which is expected to be on stream by FY 22. Company has purchased 3.4 acres of land for the expansion at GIDC, Vapi. In view of the phased implementation of the expansion, company is optimistic of generating attractive growth every single year from 2019-20 onwards & targeting 1000 crore in revenues in the next five years, where in 50% revenues shall be derived from exports. 

Solar Business

The turnover of the company from solar power operations amounted to 30.67 Crores in 19-20  as against 33.13 Crores for the previous year. The EBIT from this segment stood at 11.38 Crores as against.08 Crores in the previous year.

Financials:  

	2020	2019	2018	2017	2016
Revenue	413.68	462.41	366.85	344.38	238.46
Other Income	5.6	5.29	11.54	8.37	1.96
Total Income	419.28	467.7	378.39	352.75	240.42
Expenditure	-317.77	-341.31	-293.1	-284.5	-211.98
Interest	-1.68	-3.81	-6.05	-1.24	-1.3
PBDT	101.51	126.4	85.29	68.25	27.14
Depreciation	-22.96	-22.18	-22.88	-3.28	-3.39
PBT	78.55	104.21	62.4	64.97	23.75
Tax	-12.73	-32.71	-22.06	-21.44	-8.42
Net Profit	65.81	71.51	40.34	43.53	15.33
Equity	21.82	10.91	7.94	7.96	7.96
EPS	15.08	32.73	18.45	27.33	19.25
OPM %	24.54	27.33	23.25	19.82	11.93
NPM %	15.91	15.46	11	12.64	6.43

 Key Positives:

1. ROE >22% ROCE>28%

2. Promoter Holding: 70.48% . 

3. Debt Free Company

4. 59 crores positive cash flow

5. Current market cap 539 crores against consolidated sales revenue of approx 416 crores(FY19-20)

6. At cmp of Rs 120 stock available at PE of approx 8 on expected EPS of 14 for FY-20-21

7. Company has grown at CAGR of approx 24% in last 3 years.

8. 30% Market share of global capacity of Gamma Acid

9. Uninterrupted  Dividend paying record for last 13 years

10. 60% dividend declared for FY 19-20 stock available cum dividend (Ex Dividend on 20-8-2020)

11. Company consistently working on margin improvement.

12. Business expansion into promising new products, J-Acid, Tobias acid,& pigments will contribute to the future growth.

Short term negatives:

13. FY19-20, revenue at Rs. 413 cr compared to Rs. 463crs in previous year a de growth of -10%  

        mainly due to lower price realization,& lower power generation

14. FY19-20, EBIDTA at Rs. 103crs compared to Rs. 130 cr in  FY18-19, de growth 20%

15. EBIDTA margin for FY19-20 at 14.41% an increase by 343 bps compared to 10.98% in  FY18-19

16. For FY19-20, PAT at Rs. 66 cr compared to Rs.72 cr in  FY18-19, degrowth -8%

17. Q-1 20-21 Results not encouraging as plant was shut down and opened partially in May2020.

Risk Factors:

1. Lockdown has affected company’s performance in Q-1 ,any  lock down in future due to second wave of COVID could further affect company’s future performance.

 Investment rational:

1. At cmp of Rs 120 the stock is available at low PE Multiple of 8.Performance in FY 20-21 is expected to be affected due to prolonged lock down in the country due to COVID which is already reflecting in the price & reason for poor performance in Q-1 OF 2020. 

2. With opening up of lock down and slowly resumption of economic activity across country could see the demand rising and in next 6 months it may experience normal/higher demand from  21-22

3. Company is debt free &investing in capex  to improvise the margin & adding new products to achieve target revenue of 1000 crores in next 5 years.

4. For FY 19-20 company reported EPS of approx 15 ,Performance of FY 20-21 would get  affected because of lock down and COVID. In spite of lock down in Q1 company has reported profit of 5.7crores which is remarkable for a small cap company, though it is not comparable but maintained the margins. Next 3 quarters performance can only improve.

5. The ongoing expansion is key for the future performance for the company& should be visible after 1 year. Based on future growth potential stock might get rerated & could enjoy higher PE multiple. 

6. At cmp of Rs120 stock is available cum dividend of Rs 3,long term investor can buy this stock & accumulate on all dips for 1 year target of Rs 170-175.