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Recently, we came across Vishnu Chemicals when running a screen to identify potential investment opportunities. The numbers looked interesting and we decided to dig deeper.

On reading more we found out that the company deals in Chromium and Barium compounds and is the largest manufacturer in India for both.

Below, we have shared the details from the Q2 FY 23 con-call of the company. Hope you find them useful for your own research on the stock.

To know basic details about the company, like what all it makes, manufacturing units, CAPEX, etc. - Click HERE


Before that, recently, we released our New Stock Recommendation for Alpha and Alpha + Members

It's a food processing company, virtually debt free, compounded profits at 20% + consistently, maintained returned ratios like ROE and ROCE at 20% +, doubled its market share in exports in its segment in the last 6-7 years and yet available at less than 7 times Pre-tax earnings.

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Vishnu Chemicals - Notes from Q2 FY 23 con-call

General -

  • Our consolidated domestic and export sales continued its growth trend growing by 78% and 58% year-on-year for H1 FY 23
  • Our overall debt as of March 31, 2022 was about Rs 363 Crores which is now standing at Rs 359 Crores. We have included the preference capital in this. The overall pref. capital is Rs 77 crore

Chromium -

  • In chromium business, we reported an EBITDA margin of 17.4% in the current quarter
  • We have already started the 10000 tons of debottle-necking plants that gave us incremental volumes on a quarter-on-quarter basis but when we say flattish it is plus or minus 5% so that is a marginal change in volume
  • We do not see any demand related slowdown or there is no significant price correction
  • We see more demand for chromium chemicals coming out of North America, that is why I can say demand is resilient, in fact is looking better for early next year
  • For the next two years we may not be able to add additional volumes on the chromium front but we could work on the product mix as the demand is strong but there after in order to add to the value adds like chromic acid and chromium metal, additional feed stock in the form of sodium dichromate is required

Barium -

  • In barium segment our EBITDA margins in Q2 FY 23 is 11% compared to 9% in Q4 FY 22
  • If you see last year we operated at close to 80%, 85% on our installed capacity of 40000 tons and this year we are operating at 80% on an installed capacity of about 60000 tons so overall in the first six months our volumes have grown by close to about 10% on a year-on-year basis
  • We are focusing more on the domestic markets moving forward because the way the ceramic industry is growing in India and the product specifications what we offer is not available so our intent is to grow in the domestic market
  • Our domestic market share currently is at 45%, our intent is to go to 65%-70% in one year
  • Off late there has been some deferment in the orders on account of freight price coming down sharply and also energy prices in Europe have made our clients more watchful about how the situation will pan out so they have asked us to defer the orders for a quarter; however this does not mean that there is a dip in demand and also there is no actual substitute for this product
  • Realization difference between export and domestic sales - it would be 200 to 300 basis points, perhaps higher in the exports given the exchange rate how it is today
  • Mostly other than the domestic sales there is no imports into India of barium carbonate
  • I did mention about the new product launch Barium Sulphate, which is going to be launched in the first quarter of next financial year and we strongly believe this will augur well with the barium family and it is part of our strategy to build the product mix like what we have done in the chromium

EBITDA margin -

  • If the spreads are same and the realizations go up your EBITDA margins will not expand at the same rate and if the spreads are same and your realizations come down, then the EBITDA margin shoots up
  • The margin profile as you can see we have delivered on the targets that we set out at the start of the year but there is still some work to be done to achieve an overall targeted EBITDA margin of 20% compared to FY 22 numbers of 15%
  • We are not seeing any challenges on the chromium chemical front. So it is about how barium chemicals is going to shape up. Like I said it is very difficult to put a timeline to it as we can see and as the data is available to us the natural gas prices are quite dynamic, but going forward that is our target of 20%

Capacity utilization -

  • Currently we are operating at 80% plus utilization level in both the verticals (80,000 tons capacity for chromium and 60,000 for Barium). This is the trend that we have seen from last year and we are continuing this trend in the first half of this fiscal also
  • Optimally we can use close to about 85%

Promoter's pledge of shares -

  • Let me reiterate that the promoters of the company pledged their shares to our consortium of banks for funding to be utilized by Vishnu Chemicals Limited for its CAPEX. This started in 2007 and at that point of time, the company did not have enough security to be provided as collateral because the funding was required to expand our capacity from nearly 5000 tons per annum in chromium chemicals to 50000 tons
  • Just to give you an update, this pledge was as high as 65% of promoters holding in FY 15 which has now gradually come down to 36%. We acknowledge that it is still very high and we are working on it and organically it will be completely out of the system over the next three quarters

Guidance -

  • The volume growth that we have seen in installed capacity of chromium chemicals is 14% (70,000 to 80,000) and in barium chemicals installed capacity has gone up by 50% from 40000 tons to 60000 tons that happened in March 2022
  • The chromium chemicals debottlenecking has just completed and it is still progressing well from the operational point of view so we will see the full impact of those volumes next year which we have but even on a year-on-year growth of volumes in chromium chemicals while the number will be single digits of 5% to 6% but next year we will see a far better improvement of nearly 10% in chromium chemicals
  • In barium chemicals it will be about going from 60000 tons to nearly 1 lakh tons that is 30000 tons of our new product. So that is our total trajectory of volumes that we have shared with the markets




Disclaimer: This is not a recommendation to buy/sell Vishnu Chemicals. These notes are as announced by the companies on exchanges and only for the purpose of information and education.


Best Regards,

Ekansh Mittal
Research Analyst
Web: https://www.katalystwealth.com/


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