Thread by @arunkumar_cms

A thread and summary of my study on #Yasho industries.
Let's write it in Q/A format so that it is more clear.

Q1 : What is the business about ?

Ans : Yasho is a fine & spec chem company with 3 plants in Vapi Gujarat. 580 employees, 140 types of chemicals and 2000+ clients

Q2 : What are the categories it operates into ?

Ans :
1. Consumer chemicals : Aroma (clove oil) and Food Antioxidants (for edible oils). 20% revenue with single digit margin. Stagnated growth and no pricing power. Not in focus from 2016.
Highly competitive market.

2. Industrial Chemicals : Higher margin products (double digit) which includes rubber chemicals (tyres, sugical gloves etc), lubricant additive (ethanol blending) and speciality chem (intermediates for pharma and agrichem). Focus is on this sector. New capacity addition coming

Q3 : What market it caters to ?

Ans : 69% of total revenue comes from overseas market (50+ countries) and 31% from domestic market. Not a single client with more than 5% revenue contribution so low concentration risk. Lots of markee clients. Pricing power (short term contracts)

Q4 : What are the growth triggers ?

Ans :
1.Focus is on industrial chemicals with value added products. Margins have improved QoQ from 9% to 18% and will sustain around this number in future. Can further improve with even more stronger contribution from spec chem part.

2. They have very small market share in Europe and US so a long runway for growth there. They are also replacing the distributors and selling directly to clients that will further improve margins.
3. Big Greenfield capex coming on lubricant and rubber chemicals.

Q5 : Tell me more about Capex.
Ans : 350cr Greenfield capex ongoing in Dahej. Environmental clearance obtained in Oct so construction going on. Will commercialize in end of 2023 and early 2024.

This is Phase 1 of capex which will increase the capacity to 26500 mT from

current 11000 mT. Revenue should atleast be around 1250 Cr after this. Margins are sustainable. Capex will cater to more niche side of rubber chemicals and lubricants. Good demand globally and in the first year itself 60-70% capacity utilization estimated. Eventually will be 99%

Q6 : can't be all glory. Tell me about Risks.
Ans : I see following things
1. Raw material volatility because of high import dependence.
2. High inventory requirements (2-3 months) to meet client demands. Working capital is 95-100 days.
3. High debt because of capex

Total debt will be around 450 Cr.
4. Promoters have given unsecured loan to company and earning almost 14% interest. (May not be a risk)
Keep an eye on related party transactions.
5. Strong competition from NOCIL (rubber chemicals) Camlin and clean sciences etc.

6. Fire. Last time it happened in 2011.

Q7 : How about valuations ?
Ans : I am not an expert but keeping in mind that the revenue might double in next 2 years and if the operating margins sustains, it is not very expensive at current valuations. Market cap to sales is 2.2.

Stock has given some runup in 2021 and has been consolidating in 2022. Management is cautious of H2 FY23 and if execution of capex is successful then it can show a good run up again.

Disc : not invested but in watchlist
P

Please RT if you find it useful. Thank you and ciao. Tagging some of the people I follow 🙂
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