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 : MOVING INTO THE BIG LEAGUE

HERE IS WHY
✓Good financial improvement
✓Good growth prospects
✓Focus on cost reduction

Camlin Fine Sciences (CFS) was formed after demerging the fine chemical business of Kokoyu Camlin (erstwhile Camlin Ltd.) in 2006. The company is vertically integrated and engaged in research, development, manufacturing, commercialising and marketing of specialty chemicals and blends. The company operates under four different business verticals – shelf life solutions, performance chemicals, aroma ingredients, and health and wellness.

It reported net sales of Rs 1,049.15 crore in FY20, an increase of 17.6 per cent. It had reported net sales of Rs 892.17 crore in FY19. The company reported PBIDT of Rs 130.70 crore in FY20, an increase of 90.35 per cent. It had reported PBIDT of Rs 68.66 crore in FY19. The company reported PAT of Rs 29.83 crore in FY20, an increase of 873.28 per cent. It had reported PAT of Rs 3.07 crore in FY19. The company has reported cash from operating activities of Rs 86 crore in FY20 as against negative CFO of Rs 8.99 crore it reported in FY19.

Its net sales were at Rs 297.93 crore in December 2020, up by 8.78 per cent from Rs 273.88 crore in December 2019.

The PBIDT was at Rs 46.77 crore in December 2020, up by 58.27 per cent from Rs 29.55 crore in December 2019. The quarterly net profit was at Rs 19.42 crore in December 2020 as against net profit of Rs 3.83 crore in December 2019, an increase of 407.26 per cent. The company recently commenced its 10,000 MTPA diphenol greenfield capacity at Dahej. Hydroquinone and catechol, which are the key raw materials for AO blends and other downstream products, would be produced at Dahej as against imports from its Italian subsidiary earlier.

With this expansion, CFIL is now the second-largest player (20,000 MTPA) in diphenols. Dahej commercialisation is expected to save USD 1-1.5 per kg on account of savings in logistics, labour costs, etc. and lower the inventory days. On the margin front, there is upside potential on account of rising AO blends share and operating leverage benefits in subsidiaries. The company plans to undertake de-bottlenecking at its Tarapur facility with an additional capacity of 2,500 MTPA to produce additional MEHQ, a performance chemical, at an investment of Rs 25 crore and, moving forward, will drive revenue growth of the performance chemical segment.

CFS has plans to evolve as a global food blender and has commissioned facilities in Mexico, Brazil, North America, Europe and India. Up until now the company was largely a commodity player selling antioxidants that formed a majority share of the revenue mix. However, the company successfully transitioned itself from being a commodity player to a reliable supplier of value-added blends selling antioxidants as a commodity to making blends a value-added product. CFIN’s key strength is its focus on backward integration wherein all raw materials except phenol are manufactured in-house. The company will see significant margin upside from the FY20 level on account of faster growth of value-added portfolio, enhanced capacity utilisation of Mexico and Brazil subsidiaries and cost savings post the Dahej commissioning. The stock is trading at an adjusted PE multiple of 15.55x, which is well below its industry average PE. By virtue of these factors, we recommend our reader-investors to BUY this stock.