Dai-ichi Karkaria - Pioneer in Specialty Chemicals

 

CMP = 317

Dai-ichi Karkaria is one of the pioneer company in specialty chemical  in India. It was set up in 1960 as a private limited company to manufacture speciality chemicals. The company entered into technical collaboration with the well known international speciality chemicals manufacturer Dai-Ichi Kogyo Seiyaku Co. Ltd. Japan and commenced commercial production in 1963.

The company is engaged in the development and manufacturing of high-performance specialty chemicals. Its products include surfactants and speciality polymers for textiles, metal treatment, leather chemicals, flocculants and surfactants in agricultural &  pesticides applications, spin finishes, additives for the rayon industry, selective polymers for the oil industry like pour point depressants, flocculants and chelating agents used in water treatment and high performance green coatings for different application.

Over the years,  company remain at the forefront of innovation, pioneering the latest advancements across various industries 

Fifty years ago, Dai-ichi developed first demulsifier in India, it is used to start demulsification plant of ONGC.

Forty years ago, Dai-ichi is the first company to develop the Pour Point Depressants ( PPD) in India for ONGC.

The Company was the first company in the country to produce ethylene oxide derived surfactants

Joint Venture and Technology Partners 

Dai-ichi Karkaria has collaborations with market leaders known for their pioneering Specialty Chemical technology. These technical collaborators are leading manufacturers and exporters of high-quality products to various countries.

50:50 JV ChampionX Dai-ichi India 

The company has a 50:50 JV with global leader Nalco Champions. The joint venture between Dai-ichi Karkaria and Champion Technologies was established in 2010. In 2013, Champion Technologies was acquired by Nalco, an Ecolab company, and recently JV was renamed  ChampionX Dai-ichi India. The JV currently services and supplies the oil field chemical market in India.

The company has extensive experience in traditional & non-conventional oil and gas production for deepwater, heavy oil, oil mining, shale oil & gas and coal bed methane. The Indian joint venture sources several sophisticated intermediary products from the Company.

Dai-ichi Kogyo Seiyaku Co. Ltd.

Dai-ichi Kogyo Seiyaku Co. Ltd Japan commenced its operations in 1918 focussing on the production and sales of surfactants and other fine chemicals for a variety of industries. Dai-ichi Karkaria India has a technical collaboration with Dai-ichi Kogyo Seiyaku Co. Ltd. who provided the company with the initial surfactant technology in 1963. More recently, they have supplied  photo polymerisation technology for the manufacture of polyether polyols and polyacrylamides at  Kurkumbh plant Pune.

Matsumoto Yushi-Seiyaku Co. Ltd.

Matsumoto Yushi-Seiyaku Co. Ltd. started operations in 1926 as manufacturers of oils and sizing agents for textiles. They are one of the leading manufacturers of a wide series of textile chemicals. The technical collaboration with Matsumoto has enabled the company to indigenously manufacture a range of textile auxiliaries (both for dry & wet processing). 

Now Dai-ichi Karkaria is  one of the leading suppliers for world-class spin finishes and sizing agents for polyester filament yarn.

Dai-Ichi India has invested total capex of Rs 170 Crores for Dahej plant in three major plant manufacturing sections, an in-house R&D centre, QC lab and a state of the art ETP facility at Dahej. The expansion has doubled its production capacity. 

Company has invested in state-of-the-art technology, specifically for  EO plant. Dahej plant has imported technology for Ethoxylation which has been introduced first time in India (Technical support from Swiss company which is world leader in the area). The BUSS double loop reactor can manufacture a wide range of products in a highly efficient manner. It allows for flexibility of making a variety of EO/PO products with small to large batch sizes. The efficiencies achieved by deploying a BUSS reactor will give a competitive advantage on cost and quality front.

Investment Rationale

The half century-old company has earned a very good name as a reliable manufacturer of high-quality specialty chemicals, surfactants and polymers, its pace of growth had remained somewhat slow. In fact, it took almost 54 years to reach the Rs 100-crore sales mark. 

In the last decade company had faced many serious hurdles. It was pressure cooker like situation in Kasarwadi Pune plant.  Karaswadi plant was  five decades old with no option to do further expansion because neighborhood has become residential area. Hence, the company took decision for major expansion at Dahej. The company planned Dahej expansion in 2012 and bought the land. It took more than three years  to get environmental clearance for Dahej plant and project was delayed. There was a labour union problem in Kasarwadi Pune plant, Hind Kamgar Sanghatana (HKS) interrupted the plant shifting and Kasarwadi land sale, union filed the case in High Court. The company had sold the Kasarwadi land to Gera Developers at a cost of Rs.153.50 crores in December 2019 but deal delayed due to COVID -19 situation and there was fire incident at ppd unit. 

The company management has overcome on all above issues very professionally and settled all successfully.

The company was posting losses for last 3 years due to high finance cost of Dahej plant. Last month company has received full payment for the land parcel sale and it has settled all the debt on company and become debt free company again.

https://www.bseindia.com/xml-data/corpfiling/AttachLive/26b80d68-510a-43f1-9062-16647c8d9d64.pdf

If Dahej expansion would not have planned, it could have been major issue to growth aspiration of the company but the visionary management has realised that the need of the hour was to shift a rather small plant, located in a residential area and likely to be seen as a bio-hazard, to an industrial belt. Only then would the company be in a position to expand its manufacturing capacity and portfolio. Then it was decided to set up a greenfield plant at Dahej, which is considered a hub for chemical and petrochemical manufacturing, at a cost of Rs 170 crore.

As per management guidance for coming quarters, agro segment will remain an area of focus and growth. Its R&D centre is working to develop new products for the fast growing personal care and home care segment. These new products are high-quality specialty chemicals and almost 40 per cent of them are import substitutes, ensuring an assured market at home with good export prospects.

Factory shift : Game-changer in the making

http://www.dai-ichiindia.com/wp-content/uploads/2014/08/Corporate-India-Magazine-15th-Sep-2020-Edition.pdf

The company is also focused on introducing novel agro products and construction chemicals. Superplasticizer are used in bridges which need higher concrete strength. Make in India push for infrastructure development has set the stage to provide ample opportunities for growth.

The company management is confident that within the next 3 to 4 years the company would achieve sales of 300 - 400 Crores which would have better margin due to higher scale.

India is in a sweet spot in Specialty Chemicals because demand is picking up and several global customers are moving away from China to have a reliable alternate supply source, which is cost and quality competitive at par with China.

Speciality Chemicals segment is growing at very healthy  pace of 12% CAGR. Dahej plant is multipurpose, which can easily be migrated to other end uses. The company has competitive advantage of being in Dahej chemical and petrochemical manufacturing hub which provide access to input at lowest cost. 

Over the years, the Company has carved a niche as one of the leading speciality chemical manufacturers in India. The product range of the company has grown in line with the changing needs of the Indian process industry. Dai-Ichi is focused on safety and environment issues. Company has moved towards greener chemistries and cleaner processes that have proved economically beneficial for the Company.

The company has access to relevant and innovative technology, together with 57 years of experience in the development and manufacture of high performance specialty chemicals for different applications. The industries to which Dai-Ichi caters to have great potential to grow which translates into a higher growth potential for Dai- Ichi who is looking at new opportunities for expansion of its innovative specialty chemicals. 

The company has  very professional  and highly experienced management team. Its several director belongs to the board of very reputed companies like Britannia Industries, Godrej Industries , Astec Life Science, Indoco Remedies ,Tasty Bite Eatables , Goa Carbon,  Grindwell Norton, The Bombay Dyeing etc. It gives all required valuable expertise to grow bigger.

Conclusion

The Indian specialty chemicals industry is likely to grow at a rate of 10 -12 % in the next four to five years. The company has already expanded production capacity  which is sufficient for next 4-5 years, still company has land assets which can be monetize for future expansion, its JV with Champion X has leadership in oil well chemicals , innovative products, strong cash rich clean balance sheet and well experienced management team, all these positives augur very well for the company.  

Aarti Surfactants and Galaxy Surfactants are trading in the multiple of 50 - 60 P/E ratio with some debt. Dai -Ichi will  follow the similar P/E ratio. Dai -Ichi took 50 years to reach the Rs 100 crore sales mark but now it will take around 5 years to reach Rs 500 crores sales.

The company is going to give robust growth in the coming quarters and stock at cmp 317 is excellent investment opportunity for both mid  term and long term ( 2 year to 5 years ). It can be bought + / - 15% from cmp with 10-20 % allocation.