NGL Fine Chem
30 Mar 2018
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Topline
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Expected To increase to 170 from 100 in 2 years
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Operating margin%
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@ 21% To increase
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PE
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@ 22 Expected to be flat
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EPS
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Expected To increase to 30 from 19 in 2 years
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Human APIs / Veterinary APIs Kindly educate us on NGL's addressable domain. Any plans for addressing adjacent domains?
We are into Veterinary and Human APIs. If we look at the industry, 80% of veterinary products are also used for human beings. Exclusively veterinary products would be about 20% of the market.
Anthelmintics - De-wormers - is a major category of products we operate in. Animals have to take de-worming once a month due to raw food and conditions ingest in. There is a huge number of worms that need to be routinely expelled from their bodies. Similarly Blood Parasites is another big category. Animals get a lot by different types of ticks and fleas.
New product introductions is a continual process. We added one new analgesic product. We are adding one product to the muscle growth category. Till now we have only been addressing API requirements for mammals. Now we are looking to introduce five new Poultry products.
In 1997 we had 1 product and 2007 we could offer 6-7 such products. By 2017 we are now offering 22 products.
Most are 7-8 stage synthesis complex chemistry products (higher scope for value-addition). Some are 3-4 step products. We have developed the process chemistry for all products in-house.
Competition
Peer comparison: (Hester is not a relevant peer)
Peer comparison: (Hester is not a relevant peer)
Particulars (in%)
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2017
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Sequent
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Hester
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NGL
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Lasa
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RM Cost
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48.7%
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23.03%
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37.7%
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65.5%
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Employee Cost
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03.14%
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15.0%
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09.13%
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09.04%
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Other Exp
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26.01%
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28.02%
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22.06%
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06.09%
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OPM
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11%
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33%
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26%
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23%
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Dep.
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08.06%
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05.07%
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3.0%
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04.03%
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Finance Cost
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4.0%
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08.02%
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0.7%
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04.07%
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PBT
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0.1%
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25.0%
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22.0%
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08.13%
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Aug 2017: NGL AGM notes:
Product and Strategy:
Company is more focused into veterinary APIs. Though they are veterinary formulations and human API in small proportions, the focus areas is veterinary API. Company is NOT focused on US and Europe markets. US and Europe require huge investments and long gestation periods. There is sufficient scope in unregulated markets of Latin American and African markets. The company supplies to manufacturing factories as well as MNCs. This wants to be going forward as well. The company previously needed agents to supply to these markets. Now due to better relationships developed over past 5 years This has reduced the commission costs of the company.
Expansions:
Current 30cr expansion in Tarapur is almost 90% complete. First phase will be completed by October and by Jan second phase will be ready. Plant wants to be fully operational for FY19. Total sales can be 60-70cr from this capex in next 2-3 years. There are customers waiting for this capex to complete. The plant has zero liquid discharge and is fully automated.
Only this capacity reached 50% of the new capacity, company has already procured the country. This capex can be around 50cr. The company is already seeding the market with these new products / molecules.
R & D folks wants to be from 18 to 30 in next 3 years. Mostly MSc and PhDs
R & D folks wants to be from 18 to 30 in next 3 years. Mostly MSc and PhDs
Margins expanded due to the following reasons
1 Energy conservation due to better heat recovery systems. Water usage was halved. Recovery of water heat.
2. Minimize wastage lead to almost 2% improvement
3. Strong r & d - improved yield efficiency and strong processes. Processes were improved for older molecules.
1 Energy conservation due to better heat recovery systems. Water usage was halved. Recovery of water heat.
2. Minimize wastage lead to almost 2% improvement
3. Strong r & d - improved yield efficiency and strong processes. Processes were improved for older molecules.
Other points:
90 days credit and there are 30 days for shipment. Receivables always wants to be high for the company.
Company works only with USD. Forward cover with continuous hedge.
Capital wants to be deployed back in business rather than dividend at least for next one year.
Competitors include sequent and Lasa in listed space. There are 30-40 companies in unlisted space who are competitors.
30% of sales are long term contract. Remaining are spot contracts.
90 days credit and there are 30 days for shipment. Receivables always wants to be high for the company.
Company works only with USD. Forward cover with continuous hedge.
Capital wants to be deployed back in business rather than dividend at least for next one year.
Competitors include sequent and Lasa in listed space. There are 30-40 companies in unlisted space who are competitors.
30% of sales are long term contract. Remaining are spot contracts.
I would advise the management highly for
a) for clear strategy and focus of attacking unregulated markets first
b) seeding market for new molecules and planning next set of capacities ahead of time (giving good future visibility for next few years)
c) cost optimization measures leading to higher margins
d) Less customer concentration risks. Top customer is 12% of sales
a) for clear strategy and focus of attacking unregulated markets first
b) seeding market for new molecules and planning next set of capacities ahead of time (giving good future visibility for next few years)
c) cost optimization measures leading to higher margins
d) Less customer concentration risks. Top customer is 12% of sales
Big risk is raw material price increase.
AGM on 31st Aug'16 and what is addressed by Mr. Rahul Nachane MD
Key highlights
The company has completed the capex program of Rs 25 crore in Tarapur with which additional 35% of capacity has been added.
With this new capacity, now the company can generate a double digit sales growth in future for next 3 years. Management expects cash flow at the time of the financial crisis, or otherwise due to additional depreciation due to the capex and incidental expenses.
Veterinary segment is poised for a strong growth in the next 3-5 years. Lot of outsourcing opportunities has emerged in this sector.
The company has 2 long term contracts and needed to achieve the long term contracts. With the added capacity, management is trying to find 3-5 contracts which it expects to receive by the year FY'17.
The margins for Q1 FY'17 were helped by higher offtake of high margin products by an international customer in export business along with rupee depreciation. It's difficult to determine the margin exactly as different products have different margins. On average, given the fall in raw material prices and a depreciated rupee, average Ebidta margin will be around 19-20%.
More than 90% of company's business is API's. More than 80% of the total business is exports.
For FY'17, management expects net sales of around Rs 110 crore
The company does process tests on patented and matured products in its lab and has about 16-18 API products . 3 more are in the pipeline for FY'17.
Post the completion of capex program, management expects dividend to be declared from FY'17 onwards.
Source - Capital Line
