Chemfab Alkalis Ltd – The First Chloralkali Plant in India

Chemfab Alkalis Limited is an India-based company engaged in manufacturing inorganic chemicals. The Company offers chlor alkali and related products / services. The Company’s products are completely free from mercury and are used in food processing industries. Chemfab is the first Indian company to use the power saving ion exchange membrane cell technology to manufacture caustic soda.

Chemfab Alkalis Ltd is one of the Multibagger Shares, identified by Dynamic Research based on technical and fundamental research.

Chemfab Alkalis share price has touched a 52 week high of Rs. 228.10 on 25 -Jul -2016 and a 52 week low of Rs.65.50 on 26 -Feb -2016, and is currently trading at Rs. 214.

Share Holding

The promoters holding in the company stood at 73.58%, while Institutions and Non-Institutions held 0.10% and 26.32% respectively.

Some of the NonPromoters holding securities more than 1% of total number of shares are

• Bodies Corporate
• Foreign Individuals or NRI
• Senthilkumar N
• Sangeetha S
• Raviraj Developers LTD

Financial AnalysisQuarterly Results

For the quarter ended June 2016, the total income from operations of Chemfab Alkalis Ltd has reported a growth of 32.75 % on the Y-o-Y basis to Rs. 30.48 cr as against Rs. 22.96 cr during the same quarter last year. The boost in total income from operations shows strong development in business.

The operating profit of Chemfab Alkalis Ltd on standalone has shown a growth of 267% the Y-o-Y to Rs. 8.56 cr as against Rs. 2.33 cr during the same quarter last year; this is mainly due to the lower expenditure.

The net profit of Chemfab Alkalis has registered a growth of 294% Y-o-Y to Rs.6.19 cr as against Rs 1.57 cr during the same quarter previous year.

The earnings per share of the company have shown a growth of 292% Y-o-Y to Rs. 6.75 as against Rs. 1.72 during same period last year.

Annual Results

For the year ended March 31, 2016 Chemfab Alkalis Ltd on Standalone basis reported the net sales of Rs. 101.31 cr compared to Rs. 110.39 cr FY2015.

For the year ended March 31, 2016 Chemfab Alkalis Ltd on Standalone basis reported the net profit of Rs. 8.66 cr compared to profit of Rs. 10.23 cr FY2015.

The profitability for the year has declined to Rs.8.66 Crores as against Rs.10.23 Crores for the previous financial year; this was mainly on the account of higher accelerated depreciation on redundant equipment and Exchange fluctuations as well as due to Floods in Tamil Nadu/Puducherry.

Ratio Analysis

Name

Ratio

Current Ratio

1.26

Quick Ratio

1.22

Dividend Yield%

0.61

Interest Coverage Ratio

17.25

Debt Equity Ratio

0.02

Return On Asset (%)

4.71

Return On Equity (%)

6.32

The above ratio suggests that the company is operating with a very marginal level of debt. Higher current ratio implies healthier short term liquidity comfort level. The Company is generating decent returns with the money the share holders have invested; the above ratio also suggests that the management is efficiently using its assets to generate earnings.

Investment Rationale

• The chlorine utilization, demand growth continues and the overall balance is expected to be more balanced which could result in improved realizations on Chlorine in the forthcoming year.
• With consistent GDP growth in the country, the demand for caustic especially, is expected to grow at a reasonable rate.
• Raw material – Salt Production during the quarter at the salt fields was good. Entire Consumption of Salt was from Captive Salt Fields, which helped in keeping their raw material cost under control.
• Profit before tax of current quarter is the highest ever first quarter PBT recorded by Chemfab Alkalis.
• Plant operated at its optimum capacity during the quarter with overall utilization of 99%.
• ECU Realization was up by 4% compared to previous quarter due to uptick in the product prices.
• Company Secured First Place in Chemical Sector and Four star rating in all sectors category of CII- SR EHS Awards(2015-16) given for best practices in Environment, Health and Safety.
• Company received Special commendation for the Golden Peacock Environment Management Award-2016.
• Capacity expansion to be undertaken in a phased manner from 100 TPD to 200 TPD subject to receiving Government Approvals.
• Proposed Merger of Chemfab Alkalis Ltd with TCL will help in Inorganic growth and consolidation of Businesses.
• Continuing efforts on cost reduction measures which will ensure operational efficiencies. The Plant is expected to continue to run at optimum capacity.
• The Average Power Rate was at Rs. 5.15 per unit compared to Rs. 5.05 per unit in previous year.
• The company is also working on due approval process to commence power sourcing through "Open access" which would help the company to de-risk their power sources to some extent.

Investment Opinion

At CMP of Rs. 214 the stock is trading at a P/E of 14.14, the market cap of the company is 187.33 crore. On 11 Aug 2016 the stock has breached its upper circuit of 216 with spurt in volume.

As per Dynamic Levels we recommend a buy on Chemfab Alkalis Ltd at CMP 214 levels with a price target of Rs. 250.

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