AksharChem (India) Limited

CMP - 227

AksharChem (India) Limited incorporated in 1989, it is one of India’s leading dye intermediates, dyes and pigments manufacturing company with a installed capacity of 11,400 metric tonnes per annum (MTPA). The company is specialised in manufacturing para base ester of aniline (Vinyl Sulphone), H-Acid and Copper Phthalocyanine (CPC) Green, Violet 23 which have multiple applications in textile, inks, rubber, plastics, paints and leather industries. 

The company has state - of the - art manufacturing unit covering over 100,000 sq mt area and it is strategically located in the dense chemical belt of Gujarat

The company has globally recognised brand and most trusted suppliers of best-in-class, high performing products. It offer peace of mind to its customers with supply and quality reliability. The company is one of the leading exporters of Vinyl Sulphone, accounting for ~45% share of the country’s exports and also one of the world’s largest CPC Green pigment manufacturer with a global market share of~10%. 

Business Segments

Dye Intermediates

Dye intermediates are the key raw material used for manufacturing of reactive dyes mainly used in textile industry. The product basket of the company includes Vinyl Sulphone and H-Acid. 

Dyes

Dyes are colorants which are used to impart colours to a substance or surface such as cotton, silk, wool, paper, leather, etc. 

Pigments

Pigments are insoluble in nature and are applied as finely solid particles. They are intensely coloured and are employed to impart colour to other materials. The Company manufactures organic Pigments such as CPC Green and Violet 23, which have major applications in paint and coating, plastic, cosmetic, fabric, ink and rubber industry.

Expansion Programme

AksharChem has undertaken aggressive capex plan Rs 145 crores, it provides long term earnings visibility.  In the month of August 2017, company  has raised Rs 69 crores through QIB (Qualified Institutional Buyers) at a price of  Rs 776 per equity share  to fund the same. Of the budgeted Capex, ~Rs. 65 Crores has already been spent on enhancement of pigment capacity to 2,400 MTPA and commissioning of H-Acid facility with the capacity of 1,200 MTPA, both have commenced operations. The balance fund will be used for setting up of 12,000 MTPA of Precipitated Silica facility, its completion is expected by H2 FY 2020-21.

Precipitated Silica capex project is an important part of company' growth strategy. These are value-added products commanding better margins and will also open up a new targetable client base for company. Initially it was planned for a 10,000 MTPA plant, After considering the demand prospects and focused on reducing operating cost, company has increased the plant capacity to 12,000 MTPA. It will also help to improve valuations in future, as business transformation from cyclical to more stable earnings will change financial trajectory. 

Company has entered into an agreement to license an emerging technology which will be used in manufacture of value added precipitated specialty silica. Precipitated Silica is used intensively in the tyre, rubber industry, ceramic tiles industry, personal care products like toothpaste and tooth powder. 

Investment Rationale 

Trust and credibility: 

AksharChem exports to over 20 countries through successful execution of prior engagements, timely delivery of quality products and demonstrated technical expertise. Customer relationships are core to any business and its customers include many leading multinational corporations like, DIC Corporation, Gustav Grolman Gmbh & Co, KG, OHYOUNG Inc. and Servochem Pty Ltd. who recognise it as their ‘preferred suppliers’. The company has  history of high customer retention and derive a significant proportion of it revenues from repeat business. Even DIC Corporation Japan has become shareholder of this company due to good relationship and business satisfaction.

Strong long-term relationship with large multinational customers has enabled company to evaluate  inventory balances of materials based on shelf life, expected sourcing levels, known uses, anticipated demand and changes in product sales mix. An efficient inventory management also helps it in minimising the working capital requirement. 

As result, the Company is being able to maintain its customer base for more than two decades and products comply with all international quality standards and environment protection norms.

Post COVID -19  Increase in Demand from End-User Industries: 

Industries like textile, paint, plastic, printing ink, rubber and leather are the major end-users of dyes, dye intermediates and pigments. With improving global economic scenario, the demand from various end-user industries are surging. Factors such as increasing demand for high-grade paints/coatings, quality textile and usage of plastic in various end-user industries are ultimately going to raise the demand for dyes, dye intermediates and pigments. The textile industry is expected to grow at stable pace in the near future. Rising disposable income, increase in urbanization, high standard of living, increase in population, etc. are some of the factors which are going to help to boost the textile Industry.

Under the category of specialty chemicals, Precipitated Silica is used intensively in tyre manufacturing, ceramic tiles industry, personal care products like toothpaste. Backed by growing population and urbanization along with increase in construction activities, automobile, exports etc. this segment is expected to grow at a rapid pace in the future. 

Sustainable, compliant and strategically located manufacturing facility:

Akshar Chem plant is strategically located in the chemical belt of Gujarat, is in close proximity to raw material suppliers and downstream chemical companies. Connectivity with rail, national highway and sea-port ensures faster goods movement, lower logistics cost and business development opportunity. Its manufacturing facility has received various international registrations and affiliations, including REACH for CPC Green, ISO 9001:2015 and ISO 14001:2004. 

Company believes that quality is a key differentiator in the business and have made strong efforts to adopt uniform manufacturing standards in line with industry demands and regulatory requirements, to achieve standardized product quality for all markets. Company has adopted internationally recognised processes to ensure that minimum waste is generated per unit, treat wastes to permissible limits before disposal, emits fewer pollutants and recycle and reuse wastes to maintain healthy environment and more sustainable future.

 Experienced Promoters & Effective Corporate Governance: 

The Company, under the leadership of Mrs. Paru M. Jaykrishna, has grown tremendously and has managed to become one of the most trusted and fastest growing dyes and dye intermediate manufacturers. It continues to grow and expand by way of capacity expansion of the existing products and by adding new ones to its product portfolio. Transparency, integrity and accountability are the roots of management practice. It is environment friendly company with facilities for zero liquid discharge. It has won many prestigious awards for outstanding export performance, business excellence, etc. 

Favourable Economic Outlook post COVID-19 Outbreak : 

Currently, India is one of the major growing economies in the world. This is expected to boost the demand for dyes and pigments as they are intermediaries used in several key industries like paints & coating, textile, plastic, paper, printing ink, etc. for the manufacturing of final products. 

The shut-down of plants in China due to stringent environmental norms and anti-China sentiment around the world. It also provide a short-medium term increase in demand as this might shift the demand from China to India. AksharChem with its strong global presence, is well positioned to exploit the opportunities that are expected to arise in coming years. 

Diversification and Expansion of Product Portfolio: 

Company has worked on several new grades of Pigment Green 7 which have been technically approved by existing customers with opportunity to increase sales volume in the coming years Intensify focus on production, application profile research and development to explore possibility for new market in Coatings and Plastic industry. 

The capacity enhancement in CPC Green and investments in new products like H-Acid, Violet 23 and special grades of Precipitated Silica is going to shape future and ensure continuity of success. New plant is expected to start production within few months.

Process and Quality Excellence :

AksharChem has made significant investments in setting-up a large-scale state-of-the-art manufacturing plant and an advanced laboratory equipped with modern facilities, R&D efforts focus on continuous improvement in products and processes. Investments in process automation technologies resulted in enhanced process efficiency, product quality and reduction in human error. In a competitive global market where quality and cost matters most. Surprisingly company has not received any product rejection uptill now.

Healthy Balance Sheet: 

Even after major capex the company has a healthy balance sheet with no debt which resulted in improvement in its credit ratings.  It has completed projects like H-Acid and CPC green were entirely funded from equity and internal resources and the management feels confident of completing the rest of the projects with internal accruals as well.

Conclusion

The Profitability of the Company was affected mainly due to internal and external factors. Since last one year textile, auto, housing and construction sector were under tremendous pressure which resulted into ultimate decline of sales. Fluctuation in the exchange rate and in the crude oil affected the company adversely. In coming years, the revenue growth is expected to be driven on the back of enhanced pigment capacity, and addition of H-Acid and Precipitated Silica in its product portfolio.

AksharChem is market leader in its business segments with large world class state-of-art- manufacturing facilities. Company has excellent management team. It is debt free company with small equity base. Earning will increase significantly with improvement in business in coming quarters. It is very good investment opportunity at cmp Rs 227 for 1 year to 3 years. It can be given 10 % allocation.