khaitan chemicals and fertilizers
TRANSCRIPT
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Khaitan Chemicals and
Fertilizers Limited
A turn-around case...?
Blog: http://dharmawat.blogspot.com/
Niteen S Dharmawat
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IMPORTANT DISCLAIMER: This presentation is prepared solely to provide information about this
company and take feedback from the readers. This presentation is NOT meant for equity
investment. It should NOT be construed as an investment advice for buy/sell/hold or any other
form of recommendation. This presentation does not recommend any price or price target for
the company discussed. Investment in equity shares has its own risks. The information contained
herein is based on my study and upon sources that I consider reliable. I, however, do not vouch
for the accuracy or the completeness thereof. This material is for personal information and not
intended for any investment decisions. I am not responsible for any profit or loss incurred based
upon it & take no responsibility whatsoever for any financial profits or loss which may arise from
the discussion thread above/anywhere in communication. It is safe to assume that I, my family,
friends have vested interest in any of the companies/stocks discussed/presented here. Please do
your due diligence and take the help of a qualified advisor/registered research analyst before you
take any financial decision. I am neither of these.
About Khaitan Chemicals and Fertilizers Ltd (KCFL)
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Background…
Largest producer and installed capacity in Single Super Phosphate (SSP) in India
6 plants: Madhya Pradesh (1 plant), Chhattisgarh (1 plant), Rajasthan (1 plant), Gujarat (1
plant) and Utter Pradesh (2 plants)
The company’s SSP sold under the brand name of “Khaitan SSP & Utsav SSP”, and is a the
brand leader in Western Madhya Pradesh
Factories certified OHSAS 18001-2007 (external auditors), ISO 14001 -2004 for Environment
Management System and ISO 9001-2008 for Quality Management System
Blog: http://dharmawat.blogspot.com/
About Khaitan Chemicals and Fertilizers Ltd (KCFL)
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Background…
Earned cash profits each and every year, since its inception
Dividend paying company: last 5%
As per AR of 2016, the company is running at 30% capacity.
Industry faced successive droughts: 2013 (below average rains), 2014, 2015
Blog: http://dharmawat.blogspot.com/
Numbers at a glance
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Background…
CMP: Rs10 (52Wk H: 14.52, L: 7.45)
5% circuit limit
Ever high 233 (Nov 2010, pre 1:10 split)
2016: Revenue = 400Crore, Net profit = 1.66Crore
2012: Revenue = 650Crore, Net Profit = 25Crore
Current Market Cap = 100Crore
Promoters holding 75% (unpledged 44%)
In non-promoters category
Suresh Kanmal Jajoo holding 2.8% (increased in last one year)
Vijaya S: 3.35%
Koushik Sekhar: 1.12%
Blog: http://dharmawat.blogspot.com/
What is Single Super Phosphate (SSP)?
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Background…
SSP contains Phosphate, Sulphur, Calcium and other micro nutrients
A ‘Generic Customized Fertilizer’
India is the third largest producers & consumer in the world
Consumption heavily depends on rains
Essential Fertilizer for crops likes Oilseeds, Pulses, Sugarcane, Fruits and Vegetables, Tea etc. and for sulphur deficient soils.
SSP also contains 10-15% sulphur and 10-15% calcium. This provides an advantage in the form of improving agricultural productivity since large areas in the country are deficient in sulphur and calcium
SSP fertilizer is the lowest priced fertiizer per kg, and preferred by small & marginal farmers
Highly dependent on Imported Raw Material. Highly subsidised by Government of India.
Blog: http://dharmawat.blogspot.com/
Demand forecast of fertilizer products (Lacs tonnes): 2012-13 to 2016-17
7Blog: http://dharmawat.blogspot.com/
Year SSP
2013-14 46.82
2014-15 50.91
2015-16 55.13
2016-17 59.48
2017-18 64.76
Source: working group report on fertilizer industry
Droughts/poor rains for 3-4 years. Consumption much
lower than expected
Overcapacity (2013)
8Blog: http://dharmawat.blogspot.com/
Source: working group report on fertilizer industry
(in million tonnes)
Over capacity of (77Lac tonnes)
compounded the problem
Ingredients to produce SSP
9Blog: http://dharmawat.blogspot.com/
Ingredients Approximate of raw material cost %
Rock Phosphate 70%
Sulphur 10-15%
Sulphuric Acid/Spent Acid 5-10%
Calcium/Others 10-16%
Total 100%
Key ingredient
Prices of Rock Phosphate
10Blog: http://dharmawat.blogspot.com/
INR 6,200 Per MT
$101 Per MT
NR 7,700 PMT
$115 Per MT
INR 11,110 Per MT
$202 Per MT
1USD = 55INR
1USD = 62INR
1USD = 67INR
30% down in INR Terms
Mansoon so far…
11Blog: http://dharmawat.blogspot.com/
SSP required in Rabi and Kharif
KCFL Plant Locations and Capacities
12Blog: http://dharmawat.blogspot.com/
KCFL capacity is 15% of total industry across India
Sulphuric Acid: One of the key ingredients to produce SSP. Its
availability is a big issue. Khaitanhas done this backward
integration to produce sulphuric acid in-house.
KCFL Performance
13Blog: http://dharmawat.blogspot.com/
YearCapacity
(MT)Sold (MT)
Sold/Capacity
2015-16 1,113,500 404,646 36%
2014-15 1,113,500 322,071 29%
2013-14 1,113,500 372,984 33%
2012-13 913,500 402,861 44%
2011-12 913,500 538,250 59%
KCFL Performance
14Blog: http://dharmawat.blogspot.com/
ParameterMar 2008
Mar 2009
Mar 2010
Mar 2011
Mar 2012
Mar 2013
Mar 2014
Mar 2015
Mar 2016
Sales 392 350 202 457 644 455 388 329 392
Operating Profit 28.32 42.42 7.55 68.64 60.60 27.09 17.79 34.60 40.04
OPM% 7.21 12.09 3.73 14.99 9.40 5.95 4.58 10.51 10.21
Other Income 3.82 2.25 11.89 2.29 3.45 7.85 8.74 2.78 1.70
Net Profit 9.03 10.27 0.81 31.43 21.74 2.13 -1.62 3.50 1.66
EPS (unadj) 9.01 10.28 0.63 32.01 2.20 0.21 0.00 0.35 0.16
Dividend Payout 19.38 17.04 143.21 7.41 10.72 22.54 - 13.71 28.92
Operating Cash Flow 27.26 41.24 -11.52 -20.97 -5.29 -43.76 175.07 21.06 27.20
Last 3 years due to drought and weak mansoonwere extremely difficult for the industry
Subsidy (?) causing fluctuations in OCF
Good operating
performance
KCFL BODs & Audit & Remuneration Committee
15Blog: http://dharmawat.blogspot.com/
All the members of Audit and
Remuneration Committees are
independent directorsResigned due to ill health
4 out of 7 members of the board are
independent directors
Risks and Mitigation
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Background…
• Khaitan had also diversified in Soy extraction. But now as per recent AR, the soy industry is passing through a tough phase with widespread activities of speculation by Industry players.
• The Company has reduced its activities in this segment to large extent along with total control on fixed expenses.
• The contribution from Soya business was less than 15% to the total revenue and is gradually reducing.
• Subsidy reduction: The Government reduced subsidy rates from Rs. 3173 per MT to Rs. 2343 per MT w.e.f. 01.04.2016 and this revision in subsidy would impact the realizations in the short term
• The impact would be neutralized over a period with gradual increase in prices of the products
• The company has good brand name in the market.
• Stock has 5% circuit limits
• Significant working capital requirement
Blog: http://dharmawat.blogspot.com/
17Blog: http://dharmawat.blogspot.com/
About the presenter:
Niteen is an MBA and cleared CFA Level 2, CFA Institute USA. A firm believer in long-term financial planning, and a 20 years veteran of the stock market. He also conducts free investor awareness sessions.
He likes reading books/magazines/news papers on the topics as diverse as general management, technology, investment, fiction, marketing and the Gita.
He is a person who believes in "Everything else can stop but learning".
Thank you
Email: [email protected]
Mobile: 9850571857
Blog: http://dharmawat.blogspot.com/
Twitter: @niteen_india
Slideshare: www.slideshare.net/ndharmawat/
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IMPORTANT DISCLAIMER: This presentation is prepared solely to provide information about this
company and take feedback from the readers. This presentation is NOT meant for equity
investment. It should NOT be construed as an investment advice for buy/sell/hold or any other
form of recommendation. This presentation does not recommend any price or price target for
the company discussed. Investment in equity shares has its own risks. The information contained
herein is based on my study and upon sources that I consider reliable. I, however, do not vouch
for the accuracy or the completeness thereof. This material is for personal information and not
intended for any investment decisions. I am not responsible for any profit or loss incurred based
upon it & take no responsibility whatsoever for any financial profits or loss which may arise from
the discussion thread above/anywhere in communication. It is safe to assume that I, my family,
friends have vested interest in any of the companies/stocks discussed/presented here. Please do
your due diligence and take the help of a qualified advisor/registered research analyst before you
take any financial decision. I am neither of these.