Thread by @kushalkasliwall

Analysis: Valiant Organics – Potential multi-bagger from house of Aarti Industries
A thread! 🧵

CMP – Rs. 1547

Covers:
🧑‍💼Management & Promoters
🧾History, Company Overview
🥑Main products, raw materials, and manufacturing facilities
contd..
#investing #valiantorganics

🧾Summary of historical financials
🙈Ok, so why look at Valiant now?
🌆Capex details
🚾Estimates of peak revenue potential of capex.

🧑‍💼Management & Promoters

1. Chandrakant Gogri – MD of Aarti industries, well known stalwart in Indian chemical industry. Aarti stands tall and is counted amongst highly ethical and efficient chemical players in the country with over five decades of experience..

...has helped the Aarti Group scale new heights of success. Aarti group owns about 25-30% of the company.

2. Arvind Kanji Chheda – He joined Valiant in 1990 and since then has been an instrumental force in building and taking the Corporate structure. Mr. Arvind Chheda is the...

..MD of the company and was also Chief Finance Officer (CFO) of the company earlier.

🧾History, Company overview
• Established in 1984 as a partnership concern Valiant Chemical Corporation and was incorporated as a private limited company in 2005. In 2015, our company was further converted into public limited company.
• Valiant Organics manufactures and...

...supplies specialty chemicals which find applications in several industries such as agro-chemical (40%), pharmaceutical (10%), rubber, and dyes and pigment industries (20%), and speciality chemicals (30%). Domestic sales constitute 85% while exports constitute 15% of revenues.

•Valiant claims to be amongst world’s most competitive producers of Chlorination, Ammonolysis, Acetylation and Hydrogenation based specialty products.

🥑Main products, raw materials, and manufacturing facilities
•Main products sold
o Para Nitro Aniline (PNA)
o Para Chloro Phenol (PCP)
o Paracetamol
o Ortho Anisidine (OA)
o Ortho Chloro Phenol (OCP)
o 2, 4 Di Chloro Phenol (2, 4 DCP)
o Others

This means that Chlorination/Ammonolysis/others account for ~44%/40%/16% of total revenues.

• Raw materials used.
o Phenol (also produced internally)
o Para Nitro Chloro Benzene (might be sourced from Aarti Industries)
o Ortho Nitro Anisole (ONA) (also produced internally)
o Hydrogen gas
o Others (some are produced internally)

• Valiant has 5 manufacturing units and uses Kandla, Nhava Sheva, Hazira, Dahej ports for exports.
o Sarigam – Chlorination
o Tarapur - Ammonolysis
o Vapi - Ammonolysis
o Jhagadia - Hydrogenation, Hydrogenation and Methoxylation
o Ahmedabad - Sulphonation and Acetylation

Summary of historical financials (Amongst the best in entire Chemical space!)
• Sales – 98%/58% (3yr/5yr CAGR growth)
• PAT – 124%/82% (3yr/5yr CAGR growth)
• ROCE – 61%/59% (3yr/5yr Avg.)
• Debt to equity – 22% (as on Sep-2020) (despite large ongoing capex)....

•Working capital as % of sales – ~11% as of Mar-20

"You know what has been the most remarkable aspect despite this astonishing growth? Valiant was able to maintain an amazingly tight control over working capital throughout this period. This goes on to show the quality of growth

Ok, but a great past record does not mean bright future, right? So why look at Valiant now?
Valiant has gone through massive capex since past 2 years yet revenues have not flown! See how..
• FY 19 consolidated revenues were Rs 692 crores.
• TTM consolidated revenues...

...Rs 681 crores which is still below FY19.
• Capex post FY19 = Rs 313 crore (increase in gross block + increase in CWIP) which is yet to flow through to revenues.
• Net Fixed assets have increased ~2x since March-2019.
• If you assume Asset turnover of 2 (conservatively)...

...this capex alone should generate incremental sales of Rs 600-650 crore.
• Conservatively assuming 26% margins, total PAT by FY22/23 can be in range of Rs 290-Rs 300 crore.

What is Valiant doing with this Capex?
• PAP/OAP: Valiant has likely commenced manufacturing Para Amino Phenol (PAP) and Ortho Amino Phenol (OAP) in the H2 FY 20-21.
• Chlorination at Sarigam (represents ~45% of FY20 revenues): Capacity expansion from 4,800 MT to 18,000 MT...

...in last two years. This will help add high margin downstream products by using new raw materials.
• Hydrogenation at Jhagadia: Capacity expansion from 18,000 MT to 26,000 MT. Separately, capex of Rs. 100 crore for backward integration in FY 20-21 and other capacity...

...expansion projects expected in FY 21-22.
• Ammonolysis at Tarapur and Vapi (represents ~40% of FY20 revenues): Capacity expansion from 13,000 MT to 16,000 MT. This increased production capacity will mostly be value-added intermediates and import substitutes....

...
• Future growth beyond FY 21-22
o The Company has a landbank in Sayakha (68,000 sq.m.) and Dahej (12,000 sq.m.) for further expansion.
o Planning to manufacture of Paracetamol, other drug Intermediates and API’s through organic or inorganic route.

Peak revenue potential of capex
• Chloro Phenols: In FY18-19, Chloro Phenols (which includes PCP, OCP, 2,4 Di Chloro Phenol) revenues stood at Rs. 180 crores. Now if total capacity has increased by 3.75x, peak revenue potential from Chlorophenols itself could be about...

...~Rs. 675 crore.
• Ammonolysis: Considering capacity expansion, peak revenue potential can be about Rs. 300 crores.
• Acetylation, Hydrogenation, Sulphonation and Methoxylation: Considering capacity expansion, peak revenue potential can be about Rs. 140 crores.

..• Para Amino Phenol (PAP): PAP market is pegged at Rs 700 crore as per brokerage research reports. Although PAP is manufactured by various other companies and both Vinati Organics and Deepak Nitrite may enter PAP production...

... Also, recently announced PLI scheme for PAP manufacturing is assigned to Sadhana Nitro and Meghmani LLP.
• Other products:
o Para Aniside (PA) – Pegged at Rs 170 crore (source: Zouba)
o Paracetamol – Pegged at Rs 1000 crore (source: Indian Express)...

..Disclosure: This is not an investment advise and I am not a SEBI registered advisor. Please consult your financial advisor before investing.