Recommendation From Commodity Chemicals Sectors

This section gives a recommendation of a stock having stock margin padding price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon

Kanoria Chemicals and Industries 

GOOD GROWTH PROSPECTS 

HERE IS WHY
Capacity addition to meet rising demand
Textile division to reach full capacity
Reviving financial performance 

Kanoria Chemicals and Industries primarily operates in the production of chemical intermediates. Besides, it is also engaged in automotive and industrial electronics, textiles and renewable energy generation. The company's business segments include alco chemicals, solar power, textiles, electronic automotive, and others. The company’s Alco Chemicals segment produces formaldehyde and other value-added products, including Pentaerythritol, Hexamine, Sodium Formate, Acetaldehyde and Phenolic resins. Further, its solar power division is engaged in the generation of power from solar energy using photo voltaic (PV) technology. The solar power division is located at Bap village, Jodhpur district, Rajasthan.

At present, the company has two manufacturing facilities at Ankleshwar and Vizag and jointly it has production facility of 2,13,720 MT per annum. During FY2017-18, the Ankleshwar and Vizag units were running at 90 per cent and 67 per cent capacity utilisation, respectively. Kanoria’s resin production plant has a joint agreement with Hexion Inc., a global leader in thermoset resins, and ASK Chemicals, which is global player in foundry solutions and resins. These collaborations empower the company to add specialised and highvalue products to its manufacturing portfolio. 

In terms of financials, the company started FY19 with stellar performance. The net revenue for Q1FY19 rose 25.4 per cent to Rs 101.6 crore from corresponding quarter of the last fiscal. At the operating level, the company’s EBITD for quarter jumped to Rs 7.12 crore from a mere Rs 0.56 crore in the corresponding quarter of the previous year. Remarkably, the company recorded a turnaround in bottomline and reported net profit of Rs 1.92 crore in Q1FY19. 

On the annual front, the revenue for FY18 was Rs 338.75 crore as against Rs 295.66 crore in the last fiscal, representing almost 15 per cent increase. During fiscal year 2018, the company’s capacity utilisation was at 79 per cent. Thus, to meet the rising demand, the company is setting up a new formaldehyde plant at Naidupeta, Andhra Pradesh with a capacity of 1,00,000 MTPA. The company will spend Rs 46.4 crore for this capex, which will be funded through internal accruals and debt. This proposed capacity is likely to be commissioned by June 2019. To expand the business, another plant is being set up in Windsor, Canada, to cater to the North American market. 

The company uses the Formox process to produce formaldehyde and other value-added products, which ensures lower operational costs. With its new venture into textiles business, it expects to operate at full installed capacity by the end of FY19 and continued to add new customers from the USA, Germany and Italy. However, the risk of volatility in the prices of key raw materials overhangs on company’s profitability. The government's focus on infrastructure and affordable housing is likely to result in increasing overall demand for formaldehyde, pentaerythritol, hexamine and phenolic resins. The medium-density fibreboard (MDF) industry, a major consumer of formaldehyde, is rapidly growing, which will result in augmented demand for formaldehyde in the domestic market. Owing to all these factors, we urge our reader-investors to BUY this scrip