Recommendation From Chemicals Sector

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

CAMLIN FINE SCIENCES : WORKING OUT THE RIGHT FORMULA 

HERE IS WHY
☛Good growth prospects
☛Near-term Expansion plans
☛Good financial performance 

Camlin Fine Sciences (CFS) operates under four different business verticals: shelf life solutions, performance chemicals, aroma ingredients, and health and wellness. CFS supplies its performance chemical products to a wide array of industries such as petrochemicals, dyes, pigments, pharmaceuticals, agrochemicals, polymers, etc. It is one of the world’s leading manufacturers of a key aroma ingredient, Vanillin, used in food, flavours fragrance and pharmaceutical industries. It also produces Catechol, the basic raw material to make Vanillin and Ethyl-Vanillin. The fully integrated robust manufacturing chain ensures some control over the raw material supply side and price.

During the year, CFS started its health and wellness division. It offers nutraceutical products from fermentation and green extraction sources. Meanwhile, the demand for shelf life extension products in food is increasing globally with a change in customer lifestyle. CFS is doing capacity enhancements of Hydroquinone and Catechol with the new facility in Dahej. 

This greenfield plant is expected to add to the company’s performance this year. The plant construction work was been completed. 

The plant will have a capacity of 10,000 MTPA for both Hydroquinone and Catechol, which are the major raw materials for the downstream products. The company is also proposing to set up a new plant for manufacturing Ethyl Vanillin with a capacity of 1,200 MT. The construction of the plant will commence in 2021 and production is expected to start in the year 2022. The management believes that these initiatives are expected to provide CFS with a significant cost advantage and thereby improve profitability from FY21 onwards. 

The company has shown good growth in the past. Net sales in FY20 stood at Rs 1,049 crore as against Rs 720 crore in FY18. The operating profit has also shown an increase in the same period. Operating profit for FY20 stood at Rs 138 crore as against Rs 27.5 crore in FY18. For the quarter ended June 2020, the company’s gross sales increased by 17.54 per cent to Rs 305.7 crore in Q1FY21 from Rs 260 crore in Q1FY20. Operating profit showed an increase of 34 per cent to Rs 51.7 crore in Q1FY21 from Rs 38.5 crore in the same quarter last year. PBIDT margin for Q1FY21 stood at 16.93 per cent as against 14.83 per cent in the same quarter last year. 

The company’s net profit for Q1FY21 stood at Rs 20.56 crore as against Rs 16.43 crore in the same quarter last year, showing an increase of 25 per cent. PAT margin for Q1FY21 stood at 6.72 per cent as against 6.32 per cent in the same quarter last year. ROCE for FY20 stood at 12.02 per cent as against 7.32 per cent for FY19 respectively. The company is trading at PE ratio of 41.90x, which is higher than its five-year median of 38.96x. The current PB is 2.98x which is near the five-year median of 3.01x. The stock is trading at a significant premium based on 10-year median PE multiple of 24.37x and PB of 2.21x. However, the capacity additions and thereby positive growth in topline and bottomline could help it sustain that premium. By virtue of these factors, our recommendation to reader-investors is to BUY this stock