Skip to main content

Chemfab Alkalies


Chemfab Alkalies operates in the heavy chemicals industry and is in the business of manufacturing Chlor Alkali products.

It primarily manufactures Caustic Soda Lye, comprising about 75% of revenues, which is used in various basic industries such as paper, aluminium, textiles, etc.  It also produces chlorine (comprising 12%-13% of revenues), hydrogen, sodium hypo chlorate, and hydro chloric acid – also finding applications in various manufacturing industries.

The company reported reasonably stable (albeit somewhat declining) operating profits and revenues in the last five years – reporting about 16cr in operating profits on revenues of 77cr in the last financial year.  It held cash and liquid assets of over 27cr as at 31st March, 2012

The business is very cyclical – dependent not only on international demand fluctuations (primarily from aluminium manufacturers) arising from global economic cycles but also global oversupply in its own industry arising from capacity additions by competitors.  For e.g., the company operated only at 75-80% capacity in the previous year when excess supply was not fully absorbed by demand.  This situation results in dampening of selling prices.

The business is exposed to increases in energy as well as raw material costs.  This is usually passed through to customers but this appears to be more a function of industry practice than firm-specific competitive advantages.

It is also exposed to a weakening INR as it is generally a net importer of capital equipment.

The outlook for the chlorine business doesn’t appear to be promising and demand growth is slower than the caustic business – management foresees low capacity utilisation in this segment for the near future.

Management have adopted a niggardly dividend policy despite the abundance of liquid resources (see above). They have stated “lower volumes .. lower profitability .. need to conserve liquid funds” as reasons for not recommending ANY dividend for the year.  Any equity shareholder reading this should forcefully challenge management on this reasoning – the extent of the policy is surely unreasonable considering the abundance of liquid assets available with the company.  

Management of several listed companies have gotten away for far too long with such disregard for equity shareholders – it is time for equity shareholders to step up and take action to rightfully assert a more rational dividend policy concerning their equity shares.

Comments

Post a Comment

Popular posts from this blog

On The Radar: India's Small-Cap Equities (Concluded)

We have been running a series of articles titled ‘Under The Radar: India’s Small-Cap Equities’ beginning in December 2011 - and followed up twice - with the last article in December 2013. We would like to conclude this series after updating the small-cap index level and returns, comparing it to our expectations ex-ante, and analysing the current scenario.  Following this, we have also outlined where we may take this blog in the future. The small-cap index closed at 11,087.07 on December 31 st , 2014.  This compares to a level of 6,150.65 in our last article – resulting in an advance of over 80% to date. This is a handsome absolute return by any standard, particularly compared to Indian government bonds, which yielded around 8-9% for the period.  This justifies the conclusion at the end of our previous article that “small-caps in India offer among the most attractive bargains during any time since 2006 and certainly in the entire Indian stock market today...
1 comment
Read more

Under the Radar: India’s Mid-Cap and Small-Cap Equities

Indian stock markets have been one of the worst performers in 2011 – worse than their BRIC peers, worse than the rest of Asia and far worse than the US with the leading indices declining about 25% during the year.  Foreign investors in India have also suffered substantial declines of nearly 20% in INR currency value. There appear to be several reasons for the market’s dislike for Indian equities in 2011, which include persistent inflation (including food inflation, which constitutes the major proportion of the typical Indian household), political paralysis (e.g. rollback of foreign investment in retail etc.) and global concerns about the solvency of several Eurozone countries. As a result, estimated GDP growth for the next financial year has been revised downwards from about 8% earlier in the year to about 6% now - with many market commentators wondering whether this rate of growth is India’s ‘new normal’.  This is still, however, substantially higher than global av...
2 comments
Read more

Under The Radar: India’s Small-Cap Equities (Part Three)

In February of this year, we summarised the valuation parameters of the BSE Small-cap Index in India (now the S&P BSE Small Cap Index) - following on from an earlier report we wrote in December, 2011 - and drew certain conclusions. We would like to update the valuation scenario with the data today, review those conclusions, and form new ones based on the available information. The small-cap index closed today (17 th December, 2013) at 6,150.65 with an indicated price to book value of 1.04. The closing value as on February, 2013 was 7,006.73 representing a decline of over 12% as of today. The current index value masks a greater fall of over 27% to a low of 5,085.56 in August, 2013. This represents an unsatisfactory overall performance for those who invested in small caps at the beginning of the year. In our earlier report, we made two assumptions towards the end of our report to form a conclusion as to prices then:          ...
Post a Comment
Read more