Dear Sir,

We would like to share with you a detailed report on Dynemic Products (BSE – 532707).

Recently, in Mar’16 we shared our findings on Dynemic Products (BSE – 532707) which is one of India’s leading manufacturers and exporter of complete range of Food colours, Lake colours, Blended colours, & US-FDA certified FD&C colours & Dye Intermediates. The report was initiated for Alpha and Alpha plus members in March 2016 at around levels of 47 (CMP – 110).

In our latest update on the stock for our premium members, we had assigned positive rating to the stock around levels of 91.

Note: The report is being shared only for the purpose of information and is not an investment advice. In case you invest in Dynemic Products or for that matter any company, please carry out your own due diligence.

Dynemic Products – Basic details
(21st Mar’16 note on the stock)

Dynemic Products is a small company and we see this company as a medium term statistical bargain around current levels of 40-50. The stock is currently quoting around 50 crores market cap with 3 years average net profit of 8.8 crores and thereby PE of 5.9 and trailing twelve months PE of 6.9. The stock also offers ~3.2% dividend yield.

Further, though promoter holding is moderate at ~39%, they have been continuously making market purchases and increasing their holding in the company around current levels.

Business

Dynemic Products is one of India’s leading manufacturers and exporter of complete range of Food colours, Lake colours, Blended colours, & US-FDA certified FD&C colours & Dye Intermediates. The company’s products are used widely in food & beverages, drugs, cosmetics and personal care products.

The products manufactured by Dynemic meet the regulatory requirements of BIS, EU, FDA, WHO and also it meets the criteria of Kosher & Halal Certification. As can be checked at the following LINK, Dynemic is one of the few Indian companies to be certified by US-FDA.

Dynemic is largely an exporter of food colours with ~70% of its sales coming from regions outside India. There has been a notable transition in the global arena during the last 2-3 decades in the manufacturing base of colorants, with a shift in production from Europe, USA and Japan to Asia viz. China, India, Taiwan, Thailand and Indonesia etc. With decline in production in most of the traditional centers, non-traditional centers like India and China are now preferred sources for supply of colorants to the global market.

In India, Gujarat and Maharashtra account for nearly 95% of the colorant production in the country and Dynemic also has its two plants spread over 50,000 sq. Mt of area in Ankleshwar, Gujarat. Further, Company also has a plot in Dahej – III Industrial Estate having plot area of 80000 sq. Mt., however pending government approvals has delayed expansion at Dahej.

Company is environmentally conscious and considering strict regulations it has installed Multiple Effect Evaporator Plant (MEE) water effluent plant in both the units for recycling maximum water waste.

Synthetic food colours applications – Synthetic food colours are used to enhance the original colours associated with a given product. Due to light, air, temperature and moisture, product’s colour tends to fade or disappear, so synthetic colours are added.

Primary Food Colours are easily soluble in water and have wide application like in Foodstuff, Beverages, Animal feeds, Sea-Foods, Meat & Fish products, Cosmetics, Toiletry products etc.

Lake Colours are dispersible in vegetable oil, and can be mixed with fats, oils, etc. As they are more stable than water-soluble colours, they are widely used in cosmetic and pharmaceutical industry.

Management

Dynemic Products is basically a family run business with founder and promoter Mr. Bhagwan Das Patel as the Managing Director of the company. Other members of the family like Dashrath Patel, Ramesh Patel and Dixit Patel are also involved in day-to-day affairs of the company and are whole time Executive Directors.

In our view the promoters have been taking home reasonable remuneration with only the Managing Director charging commission based on the performance of the company.

The related party transactions also seem very much within reasonable limits.

Promoters seem to value equity and haven’t diluted the same in the last more than 10 years. Due to de-classification of certain shareholders from promoter category the promoter shareholding has seemingly reduced, however the actively involved promoters have been continuously increasing their stake through open market purchases.

Financial Performance

The financial performance of Dynemic Products has been good over the last 5-10 years.

The company has recorded 17.5% CAGR in sales for the last 10 years and 15.5% CAGR for the last 5 years.

The EBITDA has grown at 18% annualized for the last 10 years and 14% annualized for the last 5 years. Over the last 5 years the company has recorded EBITDA margins in the range of 11% and 16.5%.

The before tax profitability has grown at a rate of 15% annualized for the last 10 years and ~13.5% annualized for the last 5 years.

In terms of return ratios the company has been maintaining around 17% + return on average equity since the last 5-6 years.

The operating cash flows have been positive across the years, though slightly lower than the reported profits and thereby company has been resorting to some amount of debt for capital expenditures.

The debt equity ratio has consistently been below 1 and the same was 0.44 at the end of Sep’15. Considering various financial parameters, we believe the performance has been good and more or less consistent over the years.

Valuations

As mentioned above, around current price of 40-50, we find Dynemic Products as a statistical bargain opportunity from a medium term investment perspective.

The stock is currently quoting around 50 crores market cap with 3 years average net profit of 8.8 crores and thereby PE of 5.9 and trailing twelve months PE of 6.9. The stock also offers ~3.2% dividend yield.

Risks and Concerns

Dyes, dyes intermediate industries are subject to strict environmental laws; so any change in the environmental laws of the state or country of export can substantially impact the business of the company.

Exports account for 70% of the sales of the company and therefore unfavourable cross country currency fluctuations can negatively impact the performance of the company.

Company faces competition both from local and global players and since synthetic food colours are basically commodities, it doesn’t benefit much from lower commodity prices as it has to pass on the same. Further, during inflationary period, there’s a lag before which the company is able to raise the prices.


Disclosure:
I don’t have any investment in Dynemic Products, nor have traded in the stock in the last 30 days.

Best Regards,

Ekansh Mittal
Research Analyst
http://www.katalystwealth.com/
Ph.: +91-727-5050062, Mob: +91-9818866676
Email: info@katalystwealth.com

 

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