Thread by @aditya942000

#Fairchem
A specialty chemical co. into mfg of AROMA CHEMICALS, NUTRACEUTICALS & OLEOCHEMICALS.
-Its parent co. Fairfax Holding owned by Billionaire Investor PREM WATSA.

- Fairchem came into exitence in after FAIRFAX INDIA HOLDINGS acquired 45% stake in Adi Finechem in 2015.

& later in 2016 it acquired 51% in Privi Organics & merged the two as a result Co. was renamed as FAIRCHEM SPECIALTY LTD.

- ADI n PRIVI r stil managed by the same promoters n they still hold stake in Co.
- Although Fairchem is 1 entity but there are two business running under it

-Both of these businesses were merged with a viewpoint that they use same processes n there can be synergies between two.

-But mgt later realized that both these businesses r different in nature in order for them to grow they should be separated.

- As a result they decided to go for de-merger n its hearing is due on 30th June 2020.

Since there are two businesses running under one umbrella its imp to understand both of these.

PRIVI ORGANICS - Its in Mfg of Aroma chemicals using waste products from Pulp n Paper Mills.

- Aroma chem as name suggest r compound used in creating fragrance or Aroma.
These are used in day to day items like soaps,perfumes,hair oil etc.

-Aroma Chemicals is the Fastest Growing Segment Within F&F industry, current market size is over $5bn (37500cr)

-Privi's Rev - 1300cr/37500cr = 3.4% mkt share
-Privi's major products are from PINENE BASED wch r derived from pine trees.
-Petrochem & Pine based Aroma Chemicals Constitute ~70% Of Global Aroma Chemicals Market
-Clients:Givaudan, Firmenich, IFF, Takasago, P&G,
Henkel

-Top 4: Givaudan, IFF, Firmenich, & Symrise control over 70% of the global Flavour & Fragrance Mkt (F&F)
-Growth in Middle Class consumption in
Emerging Economies to be key
market driver
-Low chinese competition.

- In order to mfg PINE BASED CHEM. there r 2 ways
either to use GTO(GUM TURPENTINE OIL) OR CST(CRUDE SULPHATE TURPENTINE)
-Majority of players use GTO bcz its widely available(China is Major supplier) but the risk is its prices r highly volatile therefore effecting margins

-CST as a raw material is a complex process n only few reputed players can use it.
-Benefits of CST- long term contracts with supplier & they hv tied up with mills in Europe n North America fr its supply.(THANKS TO FAIRFAX!!)

-PRIVI is d only NON-European & NON-US co. to be fully integrated in Supply Chain.
-It has got 3plants - 2 in Mahad,Maharashtra , 1 in Ankleshwar Gujarat.
-Total capacity about 31000 MTPA vs 22000 MTPA IN 2017

-They r consistently expanding their capacities.
Fixed assets in Mar '20 - 746cr vs 583cr (inc. CWIP)
-PEAK ASSET TURNOVER : 3-3.25X
-Capex plan of Rs100cr p.a. ( Before COVID-19 )

Now coming to the Financials:
Since Consolidated No's contains data of both entities PRIVI N ADI it would be difficult to bifurcate between two.
Standalone is purely ADI finechem.

Have been able to bifurcate the two businesses.
Kindly let me know in case of any error in data.

Revenue CAGR OVER 8 YEARS- 15.36%
EBITDA CAGR- 20%
PAT CAGR - 44.29% (inc. exceptional item)
PAT CAGR - 38% ( Excl. exceptional item)

Fixed asset stand at 610cr vs 467cr
which shows majority of expansion is being done in this business.
They need to do regular capex for growth.

Qtrly results:
Q4 was definitely impacted by COVID.
Although it caters to essential sector but still it would be irrational to say that it will not be impacted by COVID.

- Lower sales led to Negative Operating Leverage effecting PAT
- EBITDA MARGINS were still healthy at 19%.

Due to lack of mgt communication its diff to get guidance for the future.

RISKS:
- Demand wl be impacted as it caters to Fragrance Comp. majorly used in perfumes, soaps etc.
-As co. ws expanding aggressively -ve Op. Leverage wl come into play in case of lower utilization.

Cont.
- Due to lack of demand of prem. prods customers might shift to Cheaper Synthetic Aroma Chemicals
- Realizations might move down due to low demand (has happened in past too)

Near term risks r there,however looking at longer term scenario it can be a good bet.

Not a reco

Will be posting about ADI FINECHEM in separate thread.

Would be grateful if anyone can share more negatives about the Co.

Disclosure: Invested