Hope you are doing well.
Don't know about you, but we keep revisiting stocks recommended and closed by us in the past. One of them is Asahi Songwon Colors which is supposedly one of the largest manufacturers of CPC Blue crude globally.
We recommended this stock way back in 2018 to our Premium Members and closed with 56% gain as the growth outlook didn't look great.
Recently, we were again looking at the company to see if any developments have happened and it seems like some progress has been made.
Below, we have shared notes from the Q1 FY 23 presentation of the company. Hope you find the details useful for your own investments or to add the stock to your watch list.
[New Special situation] – Latest special situation recommendation looks like a relatively low downside opportunity (around 20%) based on the combination of factors discussed in our report. The holding period for this one should be around 3-4 months
Regarding upside, 20-50% is possible from our recommended levels; however, nothing can be said with certainty in such cases and therefore what’s important to know is – how much can be the downside? For details – click HERE
Asahi Songwon Colors - Notes from Q1 FY 23 presentation
- Asahi Songwon Colors Limited is one of the leading manufacturers of blue (Phthalocyanine) pigments for ink, plastics, paint, textile and paper industry with globally bench-marked manufacturing capabilities
- Recently, the company has also ventured into manufacturing of yellow, red and orange (AZO) pigments
- Asahi generated 100% revenue from Phthalocyanine Pigments till Q3 FY 21
- Acquired Atlas Life Sciences to enter into API business and create a new growth lever
- Serving more than 40+ customers currently
- Serving customer across 22 countries
- Over the last few years, the revenue contributions from the ink industry have come down from more than 90% to ~ 55%
- 56% revenue contribution from exports in FY 22
Manufacturing capacities -
- 14,400 MTPA blue pigments - CPC blue crude 10,200 TPA, Beta Blue 3,600 TPA and Alpha Blue 600 TPA (plans to enhance Alpha Blue capacity to 840 TPA)
- 2,400 MTPA Red and Yellow Pigments - Necessary infrastructure in place to enhance this capacity to 10,000 TPA
Some reputed customers -
- Clariant - 19 years of collaboration
- DIC - Supply agreement since last 16 years
- SunChemical - Supply agreement since last 16 years
- BASF - Repeat business since last 11 years with no quarter without sales
- SIEGWERK - Repeat business since last 10 years with no quarter without sales
Phthalocyanine Pigments characteristics -
- Manufacturing 1 ton of Beta & Alpha blue requires 1 ton of CPC Blue crude respectively
- Getting approval from customers is a long process and can sometimes take years
- The switching cost for the customer is high
- Phthalocyanine is mature market with established players
- In the last 15 years, the competitive landscape in phthalocyanine pigments has changed. India has now become a significant force in the markets by continuously taking share away from China, which contributed more than 70% share in phthalocyanine pigments. Today India caters to more than 70% of phthalocyanine pigment requirements across the globe
- Major raw materials – Phthalic Anhydrite & Curpuros Chloride sourced easily available
Azo Pigments -
- Asahi Songwon has entered into a joint venture with UK’s leading colour manufacture Tennants Textiles Colours Limited (TTC) to manufacture red, yellow and orange Azo pigments
- A 51:49 Asahi : TTC JV has been formed under the name of Asahi Tennants Color Private Limited
- Capacity - 2,400 MTPA at a cost of 82 crore
- JV can achieve ₹140 crores of turnover at optimum utilization levels
- Have required approvals to expand capacities to 10,000 TPA
- Capacities can be ramped up to 4,800 TPA with estimated capex of ₹40 crores in less than 6 months from project kick off date
- TTC to buyback 20% of the quantity manufactured from this JV
- Margin profile in Azo’s will be higher than that of phthalocyanine pigments
- The global organic and specialty pigment market is estimated at $5 billion and Azo is the largest in volume at 55% and 20% is Phthalocyanine Pigments
- For Azo Pigments, there is high demand that is largely met through imports from China
- Very few operational player in the segment
- Global customers Looking to shift from China
Atlas Life Sciences acquisition -
- Atlas is a leading manufacturer of Anti-convulsant, Anti-psychotic and Anti-diabetic APIs
- Key products - Pergabalin, R-Compound, Levosulpiride, Amisulpride, Glicazide, Phenylephrine
- FY 22 figures - Sales - 119.23 crore, EBITDA - 8.64 crore, PAT - 4.34 crore
- The 78% acquisition of Atlas Life Sciences Private Limited financed through a mix of ₹ 28 crores of internal accruals and ₹ 20 crores of debt
- Asahi Songwon Colors will acquire an additional stake in Atlas Life Sciences Private Limited each year for the next two years based on performance metrics, bringing the company's equity stake to 100% by the end of FY 25
- Beginning Q1, the existing plant will contribute to Asahi Songwon Colors Limited's consolidated financial results
- Asahi Songwon Colors will establish a new plant on the vacant land parcel in Chattral in order to backward integrate the existing products and introduce newer high-value products
- The greenfield project is estimated to cost 55 crore and will be funded through a combination of internal accrual and debt
Disclaimer: This is not a recommendation on the stock. These updates are as announced by the companies on exchanges and only for the purpose of information and education.
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SEBI Research Analyst Registration No. INH100001690
Research Analyst Details
Name: Ekansh Mittal Email Id: [email protected] Ph: +91 727 5050062
Details of Associate: Not Applicable
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The views expressed are based solely on information available publicly and believed to be true. Investors are advised to independently evaluate the market conditions/risks involved before making any investment decision
This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. Ekansh Mittal/Mittal Consulting/Katalyst Wealth is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Ekansh Mittal or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Neither Ekansh Mittal, nor its employees, agents nor representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Ekansh Mittal/Mittal Consulting or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement.
The recipients of this report should rely on their own investigations. Ekansh Mittal/Mittal Consulting and/or its affiliates and/or employees may have interests/ positions, financial or otherwise in the securities mentioned in this report. Mittal Consulting has incorporated adequate disclosures in this document. This should, however, not be treated as endorsement of the views expressed in the report.
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