Oriental Carbon & Chemical Ltd

Dad spotted OCCL (Oriental Carbon & Chemical) early – a couple of years back but all this time, I was not sure of sustainability of good profits. Over last 5 years, Net Profit of OCCL has grown @ CAGR of 74%. I used to think that this might be cyclical like other chemical companies but it does not seems so.

OCCL’s core business is manufacturing of Insoluble Sulphur, a vulcanizing agent used in the Rubber Industry. It is an important raw material for tyre manufacturing. Manufacturing of insoluble sulphur is limited to only a few companies globally due to restricted access to technology. OCCL is the only Indian company into manufacturing of Insoluble Sulphur. Company is now a preferred supplier, exporting about 70% of its production to leading tyre companies.

Earlier, the company was exposed to huge volatility in prices of its raw material – Sulphur. But now the company is better placed to protect its margins by adopting quarterly pricing.

Growth triggers:

  • Company undertook an expansion to double its capacity by 11,000 MT at SEZ Mundra. Phase 1 – 5500 MT, of the expansion has been commissioned during Aug, 11 and the second phase should get completed by end of this year.
  • Production from this phase is already sold out.
  • The land acquired at Mundra SEZ is sufficient for putting up another plant of 11,000 MT capacity.

Attractive Valuations at Current Price of Rs.118:

  • OCCL’s turnover has grown at a CAGR of 25% for last 5 years, while Net Profit has grown at a CAGR of 73%.
  • Stock is trading at just 3.5 times the earnings-per-share (Rs.36) of financial year 2011.
  • Stock is available at its book value (Rs.120).
  • Company has been giving 40% dividend for last 2 years. At current price of Rs.120, dividend yield is about 3.35%.

Our view:

It would be tough to find manufacturing companies having 30%+ operating margins. Based on the data available, it seems the margins are high due to entry barrier to technology. The largest player in this field is Flexsys with dominant market share, OCCL has gradually become a preferred supplier and is now able to command similar selling prices. If OCCL, can maintain OPM levels even at 25%+ and grow from here, then current valuations seem to be a bargain.

Financials:

  • Abc

    the company has been paying a dividend of Rs 2.00 (div% 20,div yield 1.67) as per the bse website, and if u could elaborate on the point why do u feel the company’s earnings are not cyclically peaking ?

    • Ayush

      Hi,

      As per the annual report of the co and other financial website, the co has been paying 40% dividend for last 2 years.

      As per the latest annual report of the co, the new capacity has got sold out even before the plant getting started 🙂 This gives a lot of confidence on the traction the business is getting. Even if the margins soften a bit, the increase in sales should take care of things.

      Regards,

    • jatinder singh

      this a blue chip company very well analysed , i read this writeup and quite informative. now the only point is wether to enter at this rate where today the volume is low(6669 in bse).
      i had earler lookd at it below 100 levels. there is no doubt that its a good compnay. but when the current mkt scenario is such that many, many stocks that have fallen look very attractive from valuation point of view, from some kind of theme in them , or there is some interesting story cooking in those stocks. when the choice with us is so wide, can we then rush in to buy oriental now…or wait for a slide….and surely it will happen. the way things are shaping up in india. leave alone europe or us. even in our country situation is boiling…
      SECONDLY …i would suggest alongwith oriental…look at the following stocks and accumulate in every fall……BOC ( 305 levels) INABS ( 610 levels ) KENNAMETALS ( 825 levels) , FULFORD , ALFA LAVAL ( Must buy at all levels even now ) , Philips carbon , Century Text ( must buy @ 310 levels.) Axis Bank , New Stnd Eng ( 570 levels) .
      i feel upside for these stocks is 40 % upward…in next 3-6-8-18 months.
      HAPPY INVESTING !!!!

      • Ayush

        Hi Jatinder,

        Thanks for sharing your views. We feel that buying should be done whenever one finds value…timing should be avoided while investing in small cos after due research. OCCL has already out-performed the market and if they can maintain the margins and grow, the stock should do well.

        We liked your other ideas also. We are also researching on NESCO and like the same and its a good stock for long term portfolio.

        Do have a look by Prof Bakshi on Nesco – http://www.tacticacapital.com/Site/Examples/Examples.html

        Thanks & Regards,

        • jatinder singh

          hi ayush
          thanks for your comments and observations. i tried tacticacapital link that u hve mentioned. but the page is not opening . on NESCO. this can be safely picked up whenever corrects to 460 levels…then 450 levels. the co is actively developing the property with help of some foreign consultants. their rental income will rise substatially going forward. The patels are looking to grow and the share price will accelerate with new investors entering at every fall.
          BOC and Alfa Laval are good buy back stories happening very soon. thin liquidity and interetsed buying will take the price up.can safely make good returns in short term…even holding for longer period 6-8 months will be advisable for good return. safe and assured. …thnx

          • jatinder singh

            SORRY its 560 -570 levels for NESCO !!!!!

  • Abc

    and it would be helpful to know how concentrated approach you follow in your personal portfolio ?

    • Ayush

      Hi,

      Being in mid/small cap space, there are always various fantastic opportunities available hence we spread our portfolio to lots of ideas. We allocate about 5-7% to our top ideas…and approx 1-3% to ideas on which work is in progress. We increase exposure on getting positive inputs.

      Similarly we get out of ideas where feedback/developments are not progressive.

  • Rahul

    Ayush,
    Being from Goenka group is a concern. They are not user friendly. Also if the company is growing 25% and has 70% increase in profits, then why does not it command high pE?
    Their has to be lot of reasons for the company price not to increase even though it may have CAGR of 25% and higher profits.
    Is there something we are missing?

    Do you track United Phosphorous?

    • Ayush

      Hi Rahul,

      OCCL is not part of the R P Goenka group 🙂 OCCL is part of J P Goenka group…as per some of the articles, the separation had happened long back.

      This group has become active after the involvement of next generation in the business.

      No, don’t track United Phosphorus closely.

  • NR

    Dear Ayush,
    Thanks for another pick. Just wanted to know if u track Savita Oil (SOTL) & Honda Seil. Both in unique business & high promoter holdings with good dividends.

    Thanks
    NR

    • Ayush

      Hi NR,

      Both are good cos, we do keep an eye on them.

      • Jayant.Doshi

        Ayush,
        The information looks good, How much downward trend you see in this stock with current market sentiments? The product profile seems interesting. Not sure if there is an env impact due to which new comers don’t want to venture in it.

        • Ayush

          Until and unless the financial performance gets affected, there doesn’t seems to be much downside.

          Being the first qtr of expansion, the new plant may not contribute to earning….as plant takes a couple of months to stabilize.

  • Vikasbargale

    Hi Ayush & fellow-bloggers,
    I am new visitor to this blog.
    dalal-street.in is very good for detailed analysis & healthy discussion.
    Please keep it up.
    I wanted to share few videos with you.

    came across few excellent thought provoking and hilarious videos of Prof.Vaidyanathan.Giving below 2 links http://www.youtube.com/watch?v=V9gjofsi4vI&feature=relatedhttp://www.youtube.com/watch?v=-QFYMnUL16cAs per me, all are must watch.It gives true INDIAN economy perspective.
    Its like Indian economy explained by our own Indian economist and not some foreigner.

    Regards,
    Vikas

    • Ayush

      Thanks, Vikas 🙂

  • Jatin

    Hi Ayush,

    Nice stock. However, earnings from current plant looks at peak to me. Max selling price and highest margins this year in last 6 years…
    I expect earnings from current plant to fall somewhat. So you may be able to buy OCCL at a lower price in next 2-3 quarters.

  • NR

    Dear Ayush,
    Just wanted to bring your attention to Kovai Medical Center & Linc Pens.

    Kovai, a well managed hospital where promotors are hiking their holding from the open market and new facilities opening at a faster pace & a good cmp to get in the stock

    Linc Pens – Battered down a lot & no more big correction expected. Big names in their kitty like mitsubishi pens etc

    Please can i have your thoughts about these companies.

    Thanks

    NR

    • Ayush

      Hi,

      Haven’t been tracking these two cos so not much idea. But had a quick glance at nos etc, Kovai has been growing consistently and can be good but valuations are not cheap. In case of Linc, I think this area is too competitive for wealth creation.

      Thanks & Regards,

  • Vikas Bargale

    Hi Ayush,
    Any fresh comments after the quarterly results of OCCL
    Regards,
    Vikas

    • Ayush

      HI Vikas,

      The nos are below expectations. The new plant has just started at the end of August and many often it takes about a month or two for the plant to stabilize. It may be that the benefit of new plant is seen in second half of this year, resulting into a better performance.

      • Vikas Bargale

        Thanks Ayush.
        Lets hope so. This stock is one of the best value buys in current market.
        Mean they have monopoly and management seems so sensible that before this plant, their debt levels were coming down and once they took this debt, the reduced their dividend from 4 to 2. As per me this is really great.
        Hope they continue this track record.
        Also promoters holding has increased though by less than 1%.
        Lets see.
        Vikas

        • Ayush

          Hi,

          The dividend hasn’t been reduced till now. Its been 40% for last 2 years.

          For this year also, they have declared interim dividend of 20%.

          Over a much longer term, the promoters have increased stake from 36% to 56%! (since 2002)

          Regards,

  • Daya Deshpande

    Hi, what is the rational PE for this stock, according to you? How to arrive at a fair PE for a company? Should one use Graham’s formula, PE = 8.5 + 2 G where G is earnings growth rate? Please share your experience on this..

    • Ayush

      Ideally if this co can maintain the superior margins of say 25-30% (done over last 2-3 years) then PE multiples can be higher also.

      Yes, the above looks reasonable.

  • Prabhat Anantharaman

    Hi Ayush, loved your analysis. Just have some concerns over the raw material costs, which has shot up considerably this quarter. Can you please throw some light on its quarterly pricing technique formula. Also with suplhur prices on the rise and rupee depreciating at an alarming pace whats your expectation for the year on its margins…….

    • Ayush

      Thanks for the appreciation.

      The co is a net exporter and raw material is just 30-35% of the cost so depreciation of rupee should be beneficial to them over a longer term.

      Yes, if sulphur prices rise too sharply, then their margins may soften. Any idea about current prices of sulphur?

      • Prabhat Anantharaman

        I’m sorry, the CMP of sulphur is not easily available on the internet. I have tried finding it out. But I believe that a major amount of our imports of sulphur come from the Middle East and African regions and keeping in mind the current crisis there, the prices have shot up. My concern is that the Raw Material Cons went up by a whooping 50 per cent this quarter, which led to a sharp decline in margins and consequently a drop in PAT. Do you think this situation will further worsen in the second half.

        • Ayush

          Hi Prabhat,

          Have a look at the excel sheet attached in the post. The co had been getting extra-ordinary margins during 2010 & 2011. The same had to melowdown. Like I mentioned in the post, if the co is able to maintain OPM at 25%+ levels, i would be more than happy.

          Lets monitor a couple of qtrs of the co to validate our expectations.

        • omprakash

          Hi Prabhat,

          Margins declined due to two factors.
          1.Forex losses of 2.09 cr.
          2.Increase in Fuel and employee costs.

          Please note that above two factors caused OPM contraction and
          higher tax outgo (Almost 50 % of PBT)caused NPM contraction.

          If we check keenly into results RM to sales percentage is steady
          at 31 per YOY.But if we compare QOQ,Rm per is somewhat increased.

          Here we should wait fr clarity on tax per,demand for it’s products in recession scenario etc.Another interesting factor is Depreciating rupee may benefit a lot for OCCL. So next Qy result is key.

          • Respondvignesh

            Hi Omprakash,

            Please let me know what is RM?? Is any one in this forum tracking Astral Polytechnik??

          • Ayush

            RM – Raw Material. Yes we are also tracking Astral – http://dalal-street.in/astral-poly-technik-ltd-bse532830/

          • respondvignesh

            Hi Ayush,
            Thanks for the link. I would like to read all your posts about midcap companies. I clicked the link ‘Recent’. But it is not going to all the old posts. Would you be able to provide me link for old posts?

            Thanks in advance,
            respondvignesh.

          • Respondvignesh

            May be link for last one year’s archive

          • Ayush

            The method to go through previous posts is – click on “last page” or nos at bottom right.

  • omprakash

    In an answer to next round emerging themes and sectors Mr.Raamdeo answered if rupee stabilises at 50 then Exporting companies will emerge as beneficiaries.At the same time Yuan appreciated by 12 per.So in nutshell Indian exporters have 20 per gain.So if rupee stabilises at around Rs 50 then OCCL,GRPL,Mayur,BKT will have great times.This will be great rejoice for us.Isn’t it.

    • Ayush

      Yes, several net exporters should get benefited.

      OCCL may report some more of M2M forex loss in next qtr as usually cos enter into 6 mnth+ hedging contracts.

      • Jatin

        Hi Ayush,

        Any idea on pricing technique or forward contracts? Have you talked to the management?

        Regards,
        Jatin

        • Ayush

          Hi,

          Based on the interaction, the co claims to be having quarterly pricing model and should be able to protect its margins to a great extent. Not much clarity on forward contracts.

  • shiv kumar

    Global capacity in this category is also increasing. Here’s a report

    Solutia Inc. (NYSE: SOA) today announced plans to expand its current
    Crystex® insoluble sulfur operations in Kuantan, Malaysia, as part of
    its strategic plan to remain the leading global supplier of insoluble
    sulfur. This expansion will double current capacity, making Solutia’s
    Kuantan site the largest insoluble sulfur manufacturing facility in the world.

    ———————-

    Jiangsu Sinorgchem Technology Co., Ltd., the world’s largest supplier of
    rubber antioxidants, today held the ground-breaking ceremony for its
    fifth subsidiary—the Taizhou Sinorgchem Co., Ltd.—in the Binjiang
    Industrial Park of Taizhou.

    It is designed to produce 15,000 tons of rubber vulcanizer—the
    insoluble sulfur, 30,000 tons of vulcanization accelerator M, and 30,000
    tons of vulcanization accelerator NS annually. During Phase-I, a
    5,000-ton facility will be built to produce the insoluble sulfur as a
    rubber vulcanizer with high content, high thermal stability and high
    dispersity. The project is expected to be put into operation in the
    third quarter of 2012. The production technology is in-house developed
    with zero emission. It is completely a new green technology. Both the
    technical level and product quality have reached the internationally
    advanced level. Currently the market for the so-called “three-high”
    rubber vulcanizer is still monopolized by the leading international
    rubber chemicals suppliers both in China and abroad. The success of
    Jiangsu Sinorgchem in developing the “three-high” rubber vulcanizer and
    the ground-breaking of its production facility mean that the market
    landscape of the “three-high” rubber vulcanizer will be redistricted,
    and also mark a solid step forward for Jiangsu Sinorgchem in its
    transformation from a product supplier to a provider of solutions for
    rubber chemicals.

    • Ayush

      Hi,

      Thanks for posting the relevant competition updates. Yes, competitors are also expanding capacities but there are hardly 4-5 serious players across the world and the demand for insoluble sulphur also keeps increasing due to ever increasing production of tyres.

      It might put some pressure on margins in short term but over long term things should stabilize. Also as per the details, co has some long term contracts with customers so utilization of new capacity shouldn’t be an issue as of now.

      • Respondvignesh

        Is oriental carbon the only player in India to produce insoluble sulphur??

        • Ayush

          Yes and one of the few globally

          • Saurabh Shankar

            Hi Ayush,

            Nice Analysis. Missed the opportunity to add this at 97..but still looks very good. For the second phase of expansion also they have i think already entered into long term contracts.
            I have 2 queries though
            1) Although, they have a strong Moat, do u have any idea if this technology is replaceable or if any new alternative technology is being developed.
            2) Is insoluble sufur used in radial and not in normal tyers? If so then it would be good for company as i think govt. is planning to make usage of radial tyres compulsory for certain segment of cars/commercial vehicles.

          • Ayush

            Hi Saurabh,

            1. No idea. Based on the google search results, 2-3 cos from China are in this business and they also say that technology is limited. From India, OCCL is the only co.

            2. Yes, usage of radial tyres is increasing rapidly and augurs well for the co.

            Don’t feel that you have missed the opportunity due to movement of the stock by 10-15 Rs. These are normal variations in mid caps.

  • Hi Ayush,

    Today, there is an announcement by OCCL that they have received an offer from Schrader Bridgeport Internationa Ltd to sell 50% stake in Schrader Duncan for 14.53 crores and company is considering to buy it. Even though details on the transaction have not galvanized yet, my first reaction on this is “why would OCCL want to buy this stake?” as the said company is facing intensely competitve environment (as writtern in their fy 2010-2011) AR and there is very little pricing power. Company is losing money on its operatopns. Wouldn’t it dilute (on consolidated basis) earning power of OCCL? Quality of business of OCCL and Schrader Duncan seems to be diametrically opposite. Doesn’t it raise concern about management quality/intentions?

    I would highly appreciate your views

    • Ayush

      Hi Dhwanil,

      I have also been trying to get an understanding of the impact of the above transaction. As of now it seems it will be a short term negative for the co.

      The co – Schrader Duncan seems to be in the process of limited operations and winding down of things. If one looks at their notes to ac/s, then last year loss of 21 Cr had a VRS exp of about 15 Cr. The positive thing as per notes to acs is that they have sold their land in Mumbai for about 43 Cr and the profit is yet to be accounted for. In past the losses were not there…I think after the exit of foreign partner may be the losses will get stopped again.

      If the losses are not to continue in the co – Schrader Duncan, then it may not be a long term negative.

      Ayush

      • Hi Ayush,

        You are right, last year’s losses are related to shutting down of Mulund plant nad hence may be considered exceptional in nature. However, there seems to be some hiccup in land sale as there is considerable amount of time has passed but company has not realized full value (20 Crore till December 2011, remaining amount 23 crores).

        I think for now it is wait and watch (though very closely). Management’s explanation on its rational for taking such action (if they do decide to buy) is going to be crucial in my view.

        Dhwanil

        • Ayush

          Yeah, I agree. Strategically what they have done might be right – as the foreign partner (who is quite big) wanting to exit might have done the sale at cheap valuations.

          • Rajat

            Hi Ayush

            It does not look like a good move. The company Schrader Duncan made losses last year even if we don’t consider the VRS expense. The performance for the last few years has been poor. Their balance sheet looks stretched with huge debt, and the company might need more funds to be infused into the business (though sale of land might bring in some cash). The company also lacks any pricing power and could not pass on raw material costs to its customers. All in all, does not look like a good business.

            I like OCCL’s core business of insoluble sulphur and it would not be wise to utilize profits from insoluble sulphur in this manner. Besides, OCCL itself has taken on significant amount of debt for capacity expansion and it should be more worried about running and managing its core business.

            PS: Have you already written a letter to them

          • Ayush

            Hi Rajat,

            In short term its a negative for OCCL as the current losses would show up in the consolidated acs. But if we extend our horizon, then I don’t think this acquisition would be a major pain or something. Schrader Duncan seems to be having limited operations and the with the exit of the foreign partner lots of expenses etc and would be scaled down and operations re-structured.

            15 Cr is not a significant investment for OCCL and seems more of a strategic nature to provide exit to the foreign co. Being a very old co, Schrader Duncan might be having some hidden assets also like the the current land bank which is being sold for 43 Cr.

            I did speak to the CS, it seems they will go ahead with the transaction as OCCL is their main co through which they can fund this transaction.

    • Ayush

      As minority shareholders we should write a letter to the co suggesting them – not to go ahead with the transaction. If they are interested they should do it in their other co.

  • This is really
    interesting. I never seen such kind of Leak Detector. It is really cheap.
    Thinks for this post.

  • Saurabh Shankar

    Hi ET today has an article stating that there is increase in consumption of Radial Tyers in CV segment.
    This should be good news for Oriental.

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  • Konchati

    in the attached sheet, expected best price for oriental carbon is 407. Is that the TARGET price for the scrip? Please clarify

    • Ayush

      Hi,

      Usually that is the best case scenario…i.e.. when everything falls in place and the stock also sees a major re-rating. As per the above sheet, we feel the stock should be valued near 8 times multiple and hence 225 is the estimated fair value.

  • Daya Deshpande

    Hi Ayush, can you share the process of finding the gems? do you first analyse the numbers and then find the qualitative details or is it the other way round?

    • Ayush

      Hi Daya,

      Yes, usually its the numbers first. We keep track of quarterly results, announcements etc to get interested. Our website http://www.screener.in has also been very helpful.

  • Avinash

    Hi AYush,
    The results are below expectations as the sale is down and the Q-oQ is also down so is the consolidated. The only silver lining is the div which is again questionable as the company had policy of declaring2 divs which is higher then what was declared. If the company doesn’t declare the interim Div then the Div payout would be less and if they declared it then would be higher.

    Do you think the RE dep would also take a toll on the next qtr results? I was surprise to see the sales less as the plant was suppose to be running at 80- 90% capacity.

    Your comments?

    • Ayush

      Hi Avinash,

      I don’t think we should be doing strict QoQ analysis. Broadly speaking, I think the results are pretty good as the margins are stable and going forward new expansion is coming up and fall in rupee should bring major gains to them.

      Increasing of dividend from 40 to 50% is a positive and will protect the downside.

      • Hi Ayush The results are good indeed. I will be happy as long as they maintain EBITDA margins above 25%. Plus with new capacity going live in May 2012, we can expect further increase in sales in 2013. Their balance sheet is a bit stretched though, the debt is already 116 cr. Schrader Duncan is yet not consolidated in the results. That will bring another 20 cr of debt and 2-3 cr of interest costs. Schrader Duncan is still making operating losses; though they have sold some land for 40 cr. The problem I see is that the margins can be volatile in this business (even though they claim they can pass on the costs). And with such high leverage, declining margins can have an adverse impact on the financials. May be that’s why the market is giving such low valuations to this company.

        • Ayush

          Hi Rajat,

          Yes, the results look pretty good to me and as long as they can maintain margins above even 20% for long term, the stock has lot of potential. Yes, the expansion and rupee depreciation should really help them and we should witness good growth here.

          I don’t think Schrader Duncan is a major concern till they don’t start allocating any further capital to that co. I think post the receiving of balance 20 Cr from the land sale, the debt would be brought down to negligible levels and the co should break even.

          Yes, stability in margins is important to re-rate the stock significantly.

  • Is there any hope for rerating of PE of the sector ? The real welath is created when along with EPS of co the PE also increases.
    I believe this sector will remain a perennially low PE sector due to China threat, low dividend payout n cyclical nature of business.
    Coming to rerating of sector PE which is the sector whose PE can expand is the key question to answer.Whats your answer for this query Ayush? Can Mayur PE still expend?? Vivek Gautam

    • Ayush

      Vivek,

      I do hope that there will be a PE re-rating otherwise I wouldn’t be buying. At 3-4 times PE, I do think the valuations are cheap.

      Yes, wealth creation happens when both EPS and PE grows and if you look at past examples then such happens in cases where the perception was bad while the co starts doing well. I think similar is the case here…the co is doing pretty well but people have bad perception due to the sector and promoter tag.

      Do go through the mgmt interview posted at valuepickr. This is not a typical chemical sector co, also not much of a China threat. The dividend pay-out is still healthy at 15% and the co intends to gradually increase if the capex requirement is not high.

      Predicting which sector’s PE will expand is a million dollar question!

      • How does Vivimed chemicals appear in the field of chemicals. Unique product which implies a big moat increasing exports depreciating rupee.please give your views

        • Ayush

          The co may be good but I haven’t been able to understand somethings and get comfort. Also we remain cautious on cos which do too many acquisitions.

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  • Shankar

    Hi Ayush,

    whats your opinion on the latest set of numbers (Q2). YOY seems to be okay but QoQ seems to be down.

    • Ayush

      The co is going through a weak demand environment and hasn’t been able to utilize the new capacities and hence the weaker nos.

      Going by the notes to acs, the co expects the things to improve in coming qtrs. We continue to feel that the stock is undervalued and has good potential over medium term.

      • Shankar

        Thank you

  • Lloyd pinto

    Hi Ayush,

    At CMP of 107 – do you believe this is a good time to enter this stock for an initial investment. I’ve followed your research along with the detailed forum chat on valuepickr and dhwanil’s blog as well and agree that it is undervalued. Yes – the macroeconomic scenario for the short term looks gloomy. But just as I was building conviction in this stock it rose to 160-170 levels and hence I didnt enter. However now it looks to be a good price to enter. Just wanted to know your views on this.

    • Ayush

      Hi Lloyd,

      We do feel that the stock is undervalued an is going through a tough time due to weak demand scenario. So yes, these are good times to buy good ideas. But if this weakness continues, the stock may test patience and hence the buying should be done in a phased manner.

  • rajat setiya

    Hi Ayush,

    Thanks for the analysis! I wanted to take your view on ‘loans/advances’ given to bodies corporate/firms worth ~21Cr as mentioned in Auditors comments in annual report for FY 2004. Auditors have been commenting on this in the auditors note every year up until FY2009 by when, looks to me, all the amount has been slowly written off from books. Concerns are 1) Company has not mentioned name of borrower and why the borrower is not able to repay. 2) writing off the amount during 6 years time period when it should have been written off in 1-2 years.
    Looks like a CG issue to me. Just wanted to take your views.

    Many thanks.
    Rajat

    • Ayush

      Hi Rajat,

      Thanks for bringing up and pointing an important point. Between 2005 to 2010, the co wrote off an amount of 11 Cr as bad debt on the loans and advances given earlier.

      It could very well be an advance due from a group co. However, if we look at the history of this co, then they did very poorly in most of the businesses they got and many of them got shut. Probably only OCCL was the one which was successful in a meaningful way. So it is also possible that the amount was actually a bad debt (as the notes to acs explain that the amount due was towards some settlement done in 2000) and not an entry to manipulate nos. But yes, its something to be careful about and should fetch lesser marks.

      • rajat setiya

        Many thanks Ayush!

        On a side note, do you see anything attractive to buy at current prices?

  • Harry

    Congratulations on yet another of your pick flying again. Occl too touché a new high . How much co can benefit by softening of crude prices? Most of Arab crude is low grade rich in sulphur and with US becoming largest producer of oil I the world thanks to Shale will OCCL benefit ?
    Also is the opp size increasing for it? India remains a big market tanks to lot of scope still left in radialization but how is the scene in other market? Any success in US market?
    Also any update on further expansion at Mundra as they already have the land and any chance of PE rerating in these bullish time. Markets are treatingOccl as a commodity chemical stock? Is it fair as pricing power is back thanks to Solutia decision of quarterly price revision?
    Any caveats?

    • Ayush

      Hi Harry,

      Yes, there might be some benefit but this is part of the business. Over longer term we have to look at sustainable margins. If the co can maintain the current and last few yrs margins of about 27-28%….and grow then its great.

      Yes, ideally they should be going for expansion at Mundra as the plant was set up with an aim of much higher capacity.

      • Harry

        Wow what a run up today.

        What are you earning estimates for it for FY 15 n 16?

        Have some HNI n instl players evinced interest in the company or bought ?

        Can it be bought at CMP with 1-2 years POV?

  • Vikas

    From the annual statement for 2014, it seems that OCL’s manufacturing unit in Mundra is under litigation though company feels it has a good case. Just a note of caution.

  • Investor101

    hi Ayush, I have been a regular follower of your wonderful blog. What are your views about OCCL’s Q2 numbers? Do you feel that the growth is slow? Also can you also share your personal views about company promoters? I mean the company bought stake in Schrader Duncan(do you consider it as red flag)? I still feel that OCCL is cheap at 8 P/E considering the growth and I feel that business has a moat, but doubtful about management. Would love to hear your views. Thanks a lot for your help and patience. Kudos to Dalal-Street team 🙂

    • Ayush

      Hi,

      We feel the co has performed well and we continue to hold. One good thing being done by the mgmt is – increasing of dividend payouts – this should give more confidence to investors.

  • Investor101

    Hi Ayush, What are your views about OCCL promoters selling 5.5 lakh shares in the open marrket? Don’t you think this is very negative and selling huge ~5% stake in the company shows lack of confidence in business by the promoters. I’ll be grateful if you could share your view point. Thanks a lot for your help and patience 🙂