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Saturday, 4 November 2017

Vivid Global : Multibagger for yielding Investors

Vivid Global Industries Ltd, CMP 46, P/e 19, Dividend Yield: 0.54%, ROE-30+

Firm's History

NATURE OF BUSINESS : 

Vivid Global Industries Ltd (Formerly known as Vivid Chemicals Ltd. / Vivid Exports Ltd.), an ISO 9001 – 2008 Certified Company is the flagship company of the Vivid Group of Industries and is a Public Limited Company actively traded on The Bombay Stock Exchange whose name is well known in the field of Dyes and Dye-Intermediates and Speciality Chemicals for the past 43 years. The group was promoted by Mr. Sudhir M. Mody, a Chemical Engineer from U.S.A. who has dedicated more than 43 years in the field of Dyes and Dye-Intermediates and is now managed by Mr. Sumish S. Mody, Chairman and Managing Director, MBA graduate from USA who is in charge of all commercial and financial operations of the group who has more than 20 years experience in this field. The group has a total work strength of about 160 well qualified, experienced and dedicated staff who have contributed to a great extent to the growth of the Company. At all levels integrity is highly appreciated and innovation is encouraged which has been one of the reasons for the development of the organization and individuals.

Vivid Global Industries Ltd., having its Registered office in Tarapur in the state of Maharashtra, India and having its Factory at Vapi in the state of Gujarat is one of the largest manufacturers of Dye intermediates such as N.Methyl J.Acid, Phenyl J.Acid, Rhoduline Acid (Di. J. Acid) and also in April, 2016, we have commenced production of Tobias Acid and Sulpho Tobias Acid in our Tarapur, Boisar Plant. We are proud to announce that it is 1st plant of Tobias acid in India.

Board of Directors : 

Mr. Sumish S. Mody - Managing Director
Mrs. Asha S. Mody - Director
Mr. Dharmesh D. Choksi - Additional Director
Mr. Miten S.Mody - Wholetime Director
Mrs. Alka H. Parekh - Additional Director

 Exports:

The Group is proud to announce that almost 90% of the India’s export of Phenyl J.Acid is being done by our Company and 60% of N.Methyl J.Acid exports is also done by our Group. We export our products to various countries such as Spain, Brazil, Pakistan, Thailand, Taiwan, Korea, Bangladesh, USA. Etc. Our main clients are Archroma (formerly known as Clariant).
We, at Vivid Global Industries Ltd., strive hard to raise our quality standard to maintain growth and leadership, so as to emerge as a No. 1 ‘Custom Oriented Company’.

Products:

 



 

FUTURE PROSPECTS:

The Board of Directors are pleased to announce that the Company was successful in introducing Tobias Acid for-pigment grade whose main application is for Paint Industry. The Company has started getting the export orders of this product from Taiwan, Huntsman, Europe and Japanese markets and also is in the process of developing new market potential in Korea, China & US.

Company expects to increase the Plant capacity from current 80 MT to 100 MT per month which would be recommissioned by December 2017 beginning, leading to increase in more turnover and profitability for the quarter and year ended 31.03.2018. 

The outlook for the Company’s business is very bright because the products are used in leather, paper, jute and textile industries and paint industries. Recent times have seen a reversal of trends from synthetic to cotton fabrics and with the increase in demand for cotton, the Company has a tremendous potential for growth and further the leather and paper industries also demand company’s products regular.

 Key Takeaways:

Positive:

  1. Sales Growth: TTM 58%, 3 Yrs 9.5%, 5 Yrs 35%, 10 Yrs 22%
  2. PAT Growth: TTM 120%, 3 Yrs 30%, 10 Yrs 35%
  3. ROE% : TTM 38%, 3 Yrs 32%, 5 Yrs 31%, 10 Yrs 29%
  4. QoQ sale growth @ 60% (Jun 17) 
  5. QoQ PAT growth @ 140% (Jun 17)
  6. Operating margins are highest at 10% 
  7. Stock is at 19 PE which is median among peers
  8. Company is a regular dividend paying from last 4 years with div. yield of  0.54%
  9. Company is regular tax payer
  10. Promoter holding a decent 50.18% with zero pledge shares.
  11. Promoter increasing the stake slowly, 2014-48.4, 2015-48.5, 2016-50.08, 2017-50.18
  12. No mutual funds or FII shares so chances of bulk selling is less
  13. Reserves turned from negative to positive in 2015 and increasing YoY
  14. Fixed assets increased by 300% from 2015 to 2017 which shows active capacity expansion
  15. Return on Capital employed at 38% and in uptrend
  16. Return on Assets at 10.5% and in uptrend
  17. Debt to equity is very less at 0.32 only (Debt decreasing YoY even there is increase in assets)
  18. Interest coverage ratio is good at 6.30 and highest historically
  19. Market Cap to sales is at 1.03 which is a sign of undervalued 
  20. Available at median of 52wk high / low even porinju entered recently

Negative:

  1. Market cap is very at 42 cr so will take time for immediate stock price appreciation
  2. Only for patience investors, who can keep a track of company earnings
  3. Price to book is very high at 6.98
  4. Stock P/e is although at median but little higher for a micro cap company
  5. Ace investor Porinju entered this stock recently, this maybe a plus but his sudden exit may cause stock price to plummet in panic selling in short - mid term
  6. Volatility in currency and Crude prices may be another risk
  7. Low liquidity and entry and exit at fair prices may be difficult

 Information collection about Vivid Global Ind:

* A business that generates high ROE consistently for long periods is most likely a good business.
   Few more thing that gives confidence about the Management are
         -Negligible equity dilution over a period of ten years.
         -Consistent increase in promoters stake over the years

* what are the reasons for their competitors are not getting into this business when it is generating such fabulous RoE and need small amount of fixed assets?

                 - the products are specialty products and customer stickiness may be the reason for having good ROE and not having competition. This is fair to assume this way as there is nothing to doubt the reported figures. The company is paying dividends and taxes.

* A message from Shikhar Mundra ↓↓↓↓

Had a great chat with the director Mr. Mody. Highlights of the discussuion
  1. have got government permission of manufacturing 240 tonnes /month of Tobias Acid and S tobias Acid in the Tarapur Plant. They have developed a Tobias Acid of purity 98% compared to the traditional 97 percent. Most of the demand for this new product will be outside India.There is no fear of Chinese Competetion in this new product. they are planning to reach that target of 240 tonnes per month in phases. first 120 tonnes per month the capex incurred will be not much - hardly 3 -4 cr.
    for the next phase of 120 ton /month it will be a state of art plant. capex will be 10-12 cr as they will be constructing a building , and then putting in machinery. there can be a case of fresh equity being raised for this project. The company has decided to not do any preferential allotment in the future.
    The demand for Tobias Acid - 450 ton /month in India and Sulfo tobias is 700 ton /month .
    the users of tobias acid have to import 17 tons at a time from China if they want to make the purchase cheaper than the company. This is far above the average requirements of the clients of 2- 5 tons at a time.
Average realization of this product is Rs. 250/kg , which is on the increase nowadays as the Chinese have started increasing their prices.
Tobias
Now Tobias Acid is a backward integrated product. It is used to make their RM( J acid) for the other products at the Vapi Plant . The Vapi Plant is a zero liquid discharge plant. The capacity for this plant are 480- 500 tonnes per annum .
Products at the Vapi Plant are as follows -
Di J acid - 4- 5 tonnes per month are produced
Only producer in the world for this product. wont see any growth in this product. Realizations for this product are more than Rs.1200 / kg.
PH Jacid- 10-11 tons/month . can increase its capacity to 20 - 25 tons /month.
NM J acid- 10 - 11 tons / month. This can be an area of future growth .
Realization in this product are roughly around Rs.1000 /kg.
Mr. Moody feels that there is not much Chinese competetion in the products made in the Vapi Plant as these products are speciality chemicals.There are no expansion plans of the plant as such .
Based on the figure of 500 ton/annum given i think that the Vapi plant is underutilised.
As per the doubt regarding the group company is concerned he said that they will merge that company into vivid global in the coming future. But he did not give any details on how much the company will be valued or how much the promoters stake will increase after the merger.
The company is in the process of backward integrating right now. This will also solve the problem of their RM J acid being in short supply as highlighted in the comments above.
As far as the entry barrier is concerned the government not giving consent for a new plant is the highest in this business. It takes normally 1-2 years to get a government consent and then again 1 year to set up a plant. The market for the product can change a lot after 2 -3 years , it is difficult to predict. So there is definitely a first mover advantage for the company.
So lets have some rough calculations
for FY 18.
tobias acid plus s tobia acid will be 120 tons/month = Rs. 3 cr /month = Rs .36 cr/ annum
Revenue from the Vapi Plant = Rs. 40 cr /annum
So without any equity dilutions are additional loan requirements i see that turnover of the company doubling in FY 18. At an OPM of 10 percent , EBITDA of 7.5 cr is achievable.
PBT = 6.5 cr.( 60 lakh dep + 40 lakh inter) , PAT = 4.5 cr.
Looks like 3 times from TTM

Conclusion:


 With the strong financials, the company is looking like a long-term multi bagger for a patient investors. The company expanding on fast pace so we can see the new investor participation very soon.

Disclaimer: I am not a SEBI registered and not yet invested in this company (But will do it very soon)


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