Hello Sir,

Hope you are doing well.

Here's an investment tip for you - It's a good time to look at stocks where currently there's demand pressure and the stocks have corrected sharply, but the company has already expanded capacity and no major CAPEX is lined up for the next few years.

Remember, this investment tip is for those with investment horizon of 3-4 years or more.

Coming back to the subject of this mail, recently, Valiant Organics came to our notice. This stock did extremely well from Oct'16 to Nov'20 and went up almost 10 x during the mentioned period. However, since Nov'20, the stock is down 70% and this is what got us interested.

Below, we have shared notes from the Q3 FY 23 con call of the company to know the reasons for the dip in performance and the way forward.


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Valiant Organics - Notes from Q3 FY 23 con-call


General Points

  • The revenue from operations declined by around 13% on a Y-o-Y basis to around Rs 250 crores, primarily due to low demand from dyes and pigments and intermediates
  • We received approval for our Pharma Intermediates project in January 2023, and the plant is now operational
  • In terms of chlorination products, you will see the improvement in the current quarter. In terms of Ammonolysis products or the products that go into dyes and intermediate, that will take probably a quarter or two to improve the situation
  • Hydrogenation is currently high because chlorination was impacted. Chlorination will also come up. But hydrogenation will stay on the top because of the sheer volume of PAP that we have invested in
  • PAP, in fact, would be our largest product, which is in Pharma and not dyes and intermediate. Chlorophenol as a product line itself is entirely agro
  • Probably in the long-term pharma, which is PAP maybe somewhere around 25% to 30% total (sales). Then overall, dyes and pigments maybe somewhere around 20%, 25% again and Chlorination would be another 25%-30% which is agro basically


  • PAP is a raw material that goes into Paracetamol. We are currently at around 400 plus metric tons production, and we aim to close the year at least around 500 metric tons a month
  • Going forward for the next year, we are hoping to increase that phase wise to reach the optimum capacity, which will be somewhere around 800, 850, 900 tons capacity production is what we are trying to achieve
  • We are also trying out continuous process. And at the same time, we are also seeing how we can make it semi-continuous.
  • Worst case scenario, we will also continue as batch process only, but we will be able to still manufacture and reach around 800 to 1,000 metric tons per month
  • For FY '24, once it ramps up, it will be somewhere around 20% to 22% of our total revenue. And at full capacity, it may be somewhere around 30% of our full revenue
  • Most of our product goes to a subsidiary company in manufacturing Paracetamol. Even if our subsidiary takes about 85%, 90%, the 10% is what we have to sell in the market which would not be that difficult a task


  • The prices of RM, they have stabilized. And we are looking at coming back on track with Chlorophenols in this quarter and the coming quarters. So, for FY '24, it will be as it was running earlier
  • We had to ramp it up in a phased way. So, last quarter was at around 58%-60%. But going forward, we will reach the optimum capacity in this quarter 80%-85% capacity utilization


  • One of our key products go into dyes and intermediates in hydrogenation. So, that industry demand is very low right now. So, that is why the sales volume decreased

Focus area for next 1-2 years

  • One is stabilizing PAP. So, we need to ramp up and reach our optimum capacity
  • Second is, we have Pharma Intermediates project, which started in January. So, that will increase in phased manner. So, it will probably take a quarter or so to stabilize
  • Then OAPs and other product that we have been trying to do trial runs and achieve success. So, that is also going on, which we are hoping that we should be able to, you know, have something in a quarter or two

Why decline in margins in last 1 year

  • Raw material prices increased faster. And also, we have quarterly contracts. So, it takes time for us to pass on the cost
  • If the raw material prices continue to keep rising, then we do have a lag in passing on that cost. So, our margin for that period looks diminished.
  • Once the raw material prices stabilize, then in a quarter or so, we pass it on. And then the margins will come back to what we were working on previously, or somewhere around that
  • Given the current situation, we are confident that RMs have stabilized and our margins will return

Balance sheet

  • Around 113 crores term loan and about 112 crores of short term
  • Our aim is to continue repaying and reduce our debt


  • For this year, we are looking at it to be flattish, somewhere around 900 crores to 950 crores only because of, you know, the textile, dyes intermediates being low and even Sarigam getting still ramping up
  • For FY '24, we are expecting somewhere around 20%, 25% growth coming in from PAP ramping up as well as Pharma intermediates, etc.
  • Currently, we are at a phase where we are ramping up all our projects where we have put in a lot of money. Once those stabilize, so once PAP stabilizes, Pharma Intermediate stabilizes, all of that stabilized, then the returns will be seen very clearly
  • Overall, we can be somewhere around 1,300 crores, 1,400 crores, 2 to 3 years down the line
  • Margins will be somewhere around 18% to 20% on a conservative side


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Disclaimer: This is not a recommendation to buy/sell Valiant Organics. 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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