Privi Speciality Chemicals Ltd

Chemicals

Privi Speciality Chemicals Ltd

Chemicals

Multibagger Portfolio

CMP
Rs. 1900.00
Rating:
Buy
Target
Rs. 2700.00
September 15, 2021

Stock Info

BSE
530117
NSE
PRIVISCL
Bloomberg
PRIVISCL:IN
Reuters
-
Sector
Chemicals
Face Value (Rs)
10
Equity Capital (Rs cr)
39
Mkt Cap (Rs cr)
7099.65
52w H/L (Rs)
1955.00 - 501.05
Avg Daily Vol (BSE+NSE)
33,358

Shareholding Pattern

(as on 30-Jun)
%
Promoter
74.06
FIIs
0.47
DIIs
2.13
Public & Others
23.34
Source: Ace equity, StockAxis Research

Price performance

Return (%)
1m
3m
12m
Absolute
14.55
66.20
214.45
Sensex
5.65
11.27
50.40
Source: Ace equity, StockAxis Research

Indexed Stock Performance

Privi Speciality Chemicals Ltd Sensex
Privi Speciality Chemicals Ltd
Source: Ace equity, StockAxis Research

Privi Speciality-A niche Play in chemicals

Company Profile:
Privi Speciality Chemicals Ltd. (PSCL - formerly known as Fairchem Speciality Ltd.), a Fairfax company holding 51% stake, is India’s leading manufacturer, supplier and exporter of aroma and fragrance chemicals and a globally trusted partner and a preferred supplier of bulk aroma chemicals. Privi has state-of-the-art integrated manufacturing facilities both at Mahad in Maharashtra and at Jhagadia in Gujarat with knowledge, expertise and capacity to perform critical reactions such as; Hydrogenation, Condensation, Grignard reactions, as well as unit operations like Pyrolysis, Reactive Distillation, High Vacuum Distillation, Continuous Distillation to deliver consistency in odour and prescribed key parameters in an industry driven by stringent olfaction standards.

Privi enjoys a dominant position and economies of scale in its product categories. Privi manufacture over 50 products and has a capacity of over 37,500 tons per annum. Privi also develops and produces custom made aroma chemicals as per the specific requirements of the customer.

Consolidated Financial Statements

Rs in Cr Net Sales EBITDA EBITDAM PAT EPS ROE P/E EV/EBITDA
FY18 1024.30 130.20 12.70% 53.40 14.10 10.90% 21.20 11.00
FY19 1341.00 212.70 15.90% 94.20 24.10 16.40% 15.20 8.90
FY20 1324.10 220.60 16.70% 146.00 37.40 23.90% 8.90 7.70
FY21 1276.60 209.80 16.40% 116.90 29.90 16.20% 28.50 18.30
FY22E 1480.00 290.00 19.60% 145.80 37.30 17.00% 50.90 27.50
FY23E 1740.00 362.00 20.80% 195.70 50.10 18.90% 37.90 21.90

Investment Rationale

Market leader in a niche industry:
Privi is the leading manufacturer of aroma chemicals such as Amber Fleur and Dihydromyrcenol (citrus character) which are important ingredients in the manufacture of Fragrances. It has expanded its product range from 2 products in 1992 to 50+ high performance chemicals in 2021 based on in-house R&D. Company is the only Asian company to set up a refinery for processing waste from pulp & paper industry to produce key building blocks for aroma chemicals. Globally it is the second largest player in the pine tree fragrance segment, with a market share of 20-25%.

Privi Speciality Chemicals

Strong Client Base:
Privi has been supplying to the top 10 global fragrance companies, which controls 2/3rd of the total global fragrance market, for over 10 years and has direct relationships with global customers like Firmenich, Symrise, Mane, Givaudan, EFF, P&G, Reckitt Benckiser. In FY19 company has exported its first consignment of Terpene-4-OL to BASF which would be used in the production of Herbicides and has a lot of potential to add value to the top line and bottom line of the company.

Strong raw materials sourcing capabilities:
Privi is mainly into manufacturing aroma chemicals from terpene molecules (Pine based) that serve as building blocks in the Flavours & Fragrance (F&F) industry. Terpene molecules are procured by i) tapping a pine tree to get Gum Turpentine Oil (GTO) or ii) using the waste from a Pulp and Paper industry -Crude Sulphate Turpentine (CST).

China is the leader for GTO and the prices are very volatile. CST is a waste product in making pulp and it can be sourced with six months to one year fixed price contracts. Company has developed the Sulphur separation process (sulphur is an impurity in CST) and has tied up its procurement of CST directly from over 30 mills across Europe and North America. Privi continues to operate single largest CST processing site in Asia, which helps the company to mitigate raw material price volatility.

The financial performance in FY21 was largely driven by higher sales volume (up 15.6% YoY), lower sales price realisation and rising input costs in H2FY21. The company undertook several initiatives encompassing cost management, supply chain optimisation, smart procurement and long-term coal linkage which helped in absorbing escalation in input costs. While it depends on over 70% of imported raw materials, it also exports over 70% of its sales. It derives 70% of its sales from Pine segment. The capacity utilisation stood at 79% and leaves enough room for growth in the next couple of years.

Industry

  • Global F&F market size is about USD 30.4 Bn. Fragrance accounts for about USD 16.1 Bn (53%) of the total F&F market.
  • Within Fragrance, Aroma chemicals market size is about USD 5.5 Bn
  • The Aroma chemicals market is expected to grow at a CAGR of 5.8% from 2020 to 2027 (value based).
  • Rising importance of personal hygiene and grooming is expected to remain one of the key drivers of growth
  • The global perfume market size was valued at USD 32 billion in 2018 and is expected to expand at a CAGR of 3.9% from 2019 to 2025
Privi Speciality Chemicals

Outlook & valuation

Going forward, we believe Privi should fetch premium valuations on account of strong industry tailwinds, robust volume growth due to increase in manufacturing capacity and improvement in operating margins. also, the company enjoys cost efficiencies as most of its raw materials are derived from waste products. Further, it is also incurring capex of Rs 4.0 bn to set up capacities for new products viz. Galaxmusk (4,800 tpa at Jhagadia), Camphor (4,800 tpa at Mahad) and Prionyl (120 tpa at Mahad) which are likely to get commissioned in April 2022. Full benefits therefore are likely to be visible by FY24E. Further, the company recently signed a Joint Venture agreement with Givaudan SA, world’s largest Flavour & Fragrance Company.

As per our estimates, the stock is currently trading at 38x FY23 EPS. Furthermore, Management has set its vision of achieving annual revenues of Rs 30.0 bn soon and intends to launch at least five new molecules with a low carbon footprint in the next five years. We Initiate coverage on Privi Speciality

Chemicals Ltd with a ‘Buy’ rating.

Financial Statement

Profit & Loss statement

Yr End March (Rs Cr) 2018 2019 2020 2021 2022E 2023E
Net Sales 1024.30 1341.00 1324.10 1276.60 1480.00 1740.00
Growth % 30.90% 30.90% -1.30% -3.60% 15.90% 17.60%
Expenditure
Material Cost 662.60 826.90 803.10 751.10 832.00 1000.00
Employee Cost 56.80 71.30 65.00 69.90 85.00 89.00
Other Expenses 174.70 230.20 235.30 245.80 273.00 289.00
EBITDA 130.20 212.70 220.60 209.80 290.00 362.00
Growth % 63.30% 63.30% 3.70% -4.90% 38.20% 24.80%
EBITDA Margin 12.70% 15.90% 16.70% 16.40% 19.60% 20.80%
Depreciation & Amortization 43.30 46.90 56.80 71.00 72.00 73.00
EBIT 86.90 165.80 163.80 138.80 218.00 289.00
EBIT Margin % 8.50% 12.40% 12.40% 10.90% 14.70% 16.60%
Other Income 16.00 5.70 26.40 20.00 20.00 19.00
Interest & Finance Charges 23.90 29.00 37.60 23.70 32.90 35.50
Profit Before Tax - Before Exceptional 79.00 142.50 152.60 135.10 205.10 272.50
Profit Before Tax 79.00 151.60 192.60 158.20 205.10 272.50
Tax Expense 25.60 57.30 46.60 41.30 59.30 76.80
Effective Tax rate 32.40% 37.80% 24.20% 26.10% 28.90% 28.20%
Exceptional Items - 9.00 40.00 23.10 - -
Net Profit 53.40 94.20 146.00 116.90 145.80 195.70
Growth % 76.60% 76.60% 54.90% -19.90% 24.70% 34.20%
Net Profit Margin 5.20% 7.00% 11.00% 9.20% 9.90% 11.20%
Consolidated Net Profit 53.40 94.20 146.00 116.90 145.80 195.70
Growth % 76.60% 76.60% 54.90% -19.90% 24.70% 34.20%
Net Profit Margin after MI 5.20% 7.00% 11.00% 9.20% 9.90% 11.20%

Balance Sheet

Yr End March (Rs Cr) 2018 2019 2020 2021 2022E 2023E
Share Capital 39.10 39.10 39.10 39.10 39.10 39.10
Total Reserves 449.30 536.60 573.00 683.50 817.50 997.80
Shareholders' Funds 488.40 575.70 612.10 722.50 856.50 1036.90
Minority Interest - - - - - -
Non Current Liabilities
Long Term Burrowing 76.80 180.80 225.70 331.80 400.30 454.30
Deferred Tax Assets / Liabilities 22.10 28.70 13.40 13.30 13.30 13.30
Long Term Provisions 8.60 10.50 12.90 14.70 14.70 14.70
Current Liabilities
Short Term Borrowings 215.20 280.50 255.40 164.30 164.30 164.30
Trade Payables 150.10 214.60 149.70 167.40 188.80 198.50
Other Current Liabilities 85.00 108.30 99.80 111.30 76.80 76.80
Short Term Provisions 6.80 26.70 8.40 10.60 10.60 10.60
Total Equity & Liabilities 1052.90 1425.70 1383.70 1540.20 1729.60 1973.70
Assets
Net Block 434.90 497.50 598.20 597.90 745.90 802.90
Non Current Investments - - - - - -
Long Term Loans & Advances 22.60 26.90 24.50 65.20 65.20 65.20
Current Assets
Currents Investments 3.00 - 1.10 - 4.30 4.30
Inventories 233.90 364.20 328.70 342.50 362.50 423.50
Sundry Debtors 230.40 330.70 228.90 239.00 253.00 295.50
Cash and Bank 24.10 23.10 88.30 19.70 22.90 106.50
Short Term Loans and Advances 34.90 66.80 30.30 27.60 27.60 27.60
Total Assets 1052.90 1425.70 1383.70 1540.20 1729.60 1973.70

Cash Flow Statement

Yr End March (Rs Cr) 2018 2019 2020 2021 2022E 2023E
Profit After Tax 53.40 94.20 146.00 116.90 145.80 195.70
Depreciation 43.30 46.90 56.80 71.00 72.00 73.00
Others -4.00 -14.30 -61.30 -45.30 - -
Changes in Working Capital -18.50 -180.50 11.10 -51.50 -12.50 -93.80
Cash From Operating Activities 106.60 21.00 216.10 172.10 205.30 174.90
Purchase of Fixed Assets -92.50 -169.10 -180.30 -242.80 -220.00 -130.00
Free Cash Flows 14.10 -148.20 35.70 -70.70 -14.70 44.90
Others 11.10 5.40 4.80 1.30 - -
Cash Flow from Investing Activities -81.30 -138.50 -175.60 -241.50 -220.00 -130.00
Increase / (Decrease) in Loan Funds 8.80 161.70 71.50 30.30 34.00 54.00
Equity Dividend Paid -4.50 -6.80 - -5.90 -11.80 -15.30
Others -24.30 -33.20 -43.50 -24.30 - -
Cash from Financing Activities -20.10 121.70 28.00 0.20 22.20 38.70
Net Cash Inflow / Outflow 5.30 4.10 68.50 -69.30 7.50 83.60
Opening Cash & Cash Equivalents - 12.10 16.20 84.70 15.50 22.90
Closing Cash & Cash Equivalent 12.10 16.30 84.70 15.50 22.90 106.50

Key Ratios

Yr End March 2018 2019 2020 2021 2022E 2023E
Basic EPS 14.10 24.10 37.40 29.90 37.30 50.10
Diluted EPS 14.10 24.10 37.40 29.90 37.30 50.10
Cash EPS (Rs) 25.60 36.10 51.90 48.10 61.70 74.70
DPS 1.50 2.50 1.50 2.00 3.00 3.90
Book value (Rs/share) 129.50 147.40 156.70 185.00 219.30 265.40
ROCE (%) Post Tax 9.20% 11.70% 13.50% 10.20% 12.80% 14.40%
ROE (%) 10.90% 16.40% 23.90% 16.20% 17.00% 18.90%
Inventory Days 85.50 81.40 95.50 96.00 96.00 96.00
Receivable Days 72.00 76.40 77.10 66.90 67.00 67.00
Payable Days 48.20 49.60 50.20 45.30 50.00 45.00
PE 21.20 15.20 8.90 28.50 50.90 37.90
P/BV 2.30 2.50 2.10 4.60 8.70 7.20
EV/EBITDA 11.00 8.90 7.70 18.30 27.50 21.90
Dividend Yield (%) 0.50% 0.70% 0.50% 0.20% 0.20% 0.20%
P/Sales 1.10 1.10 1.00 2.60 5.00 4.30
Net debt/Equity 0.60 0.80 0.70 0.70 0.60 0.50
Net Debt/ EBITDA 2.30 2.20 1.90 2.40 1.90 1.40
Sales/Net FA (x) 2.50 2.90 2.40 2.10 2.20 2.20