Thirumalai Chemicals Ltd - Research Report

Private Client Research






Thirumalai Chemicals Ltd


August 02, 2017

Sensex: 32476.74

CNX Nifty: 10081.50


BSE: 500412

Reco Price
Rs. 1242.00
Price Target (1.5 - 2 Years)
Rs. 2500.00


August 02, 2017



CNX Nifty








Stock Data

CMP (Rs)
Face value (Rs)
52 Week Range (Rs)
1285.00 - 338.50
Market cap (Rs Crores)
Price To Book Value (x)
P/E Ratio (x)

One Year indexed Stock Performance

Thirumalai Chemicals Ltd Sensex
Thirumalai Chemicals Ltd
Return (%)


(in %)

+91 22 6639 3000

Turnaround in fortunes

2nd largest player in domestic PAN industry:
TCL is the second‐largest player in the domestic Phthalic anhydride (PAN) industry after IG Petrochemicals (market share of ~48%). The company also manufactures value‐added derivatives such as Maleic Anhydride (MAN), Diethyl Phthalate (DEP), and food acids. The demand for PAN in the domestic market has improved supported by healthy demand from plastics, paints, auto, etc. In 2016-17, the prices of Orthoxylene (OX), the raw material for manufacturing PAN, fell at a sharper rate than prices of Phthalic Anhydride (PAN) on account of minimal capacity additions as well as improving utilization levels for PAN. Further, capacity expansions for OX in China, Taiwan and Singapore are expected to increase the global capacity by ~4%. Thus, on the back of improved PAN prices and subdued OX prices, the spreads between PAN and OX are expected to rise in the future. The scrapping of 2.5% import duty on OX will put further pressure on prices of OX in the domestic market.

PAN demand to grow at a CAGR of ~7% over the next 4 years:
According to a report by CRISIL, domestic PAN demand is expected to grow at a CAGR of 7% over 2016- 21 mainly driven by healthy growth in plasticizers, dyes and pigments, alkyd resins, etc. With Thirumalai being one of the market leaders in the PAN market, the company should benefit from this increased demand over the next few years.

Structural triggers to drive core operations:
TCL has PAN capacity of 145,000 tonnes. The company is in the process of modernizing its plants over the next 3 years, which will include replacing its older plants and systems. The plants will have the latest technology and equipment and will deliver improved efficiencies in raw materials, operating costs, reliability and quality. Further, Asian Paints is expected to close its PAN plant in Ankleshwar to expand its paint capacity. This will lead to increase in domestic PAN demand by ~30,000 TPA. This incremental demand will help domestic PAN producers to gain market share and volume growth.

Food ingredients and fine chemicals business
The company expanded its food ingredients and fine chemicals capacity (using internal accruals) by 40% and expects to ramp up capacity further in the current year. The company has made inroads in 30 countries over the last 25 years and was only constrained by its capacity limitations. Additionally, demand for these products has increased in the domestic market too. The company is expanding capacities to meet the demand in both international and domestic markets.

Higher capacity utilisation at subsidiary plants to improve performance:
TCL’s Malaysian subsidiary, Optimistic Organic (OOSB), has recently completed expansion of MAN capacity to 45,000 tonnes. The plant had repeated shutdowns on account of which operations took longer to stabilize, impacting performance in FY17 (loss of Rs 1.26 crores). The company expects improved performance in FY18 driven by higher capacity utilisation.

Financial performance to improve further:
The return ratios of the company have improved dramatically in the last 4 years; return on capital employed (ROCE) and return on equity (ROE) have improved from 3.4% and 5.7% in FY11 to 39.9% and 27.4% in FY17 respectively. The company has been aggressively reducing its debt over the last few years. Along with debt reduction, the company has strong operating cash flows to fund its existing expansion plans. With expected increase in PAN/OX spread, the return ratios will improve in the next few years.



According to a report by CRISIL, domestic PAN demand is expected to grow at a CAGR of 7% over 2016- 21 mainly driven by healthy growth in plasticizers, dyes and pigments, alkyd resins, etc. Below are the major end-use segments:

Plasticisers accounted for 41% of PAN consumption in India in 2015-16. It has major applications in the automobile, housing and construction sectors.

Dyes and Pigments:
Dyes and pigments constituted about 20% of total demand for PAN in 2015-16. It is used to manufacture certain dyes like anthraquinone, phthalein, rhodamine, phthalocyanine, fluorescin, and xanthene dyes. Dyes and pigments have applications in sectors like paints, textiles, plastics, etc. Going forward, this segment is expected to grow on account of slowing imports due to stringent government regulations on environmental norms in foreign markets.

Alkyd resins:
Alkyd resins accounted for about 19% of domestic PAN consumption in 2015-16. Alkyd resins are primarily used in the manufacture of oil based paints. This is expected to grow at a slow pace over 2020-21 on account shift to water-based paints which are high margin and less hazardous from the health perspective.

UPR and others:
Unsaturated polyester resins (UPR) and others constituted about 20% of the total PAN consumption in 2015-16. UPR are known for their commercial usage in fiberglass reinforced plastics (FRP) as well as in applications and products such as boat and ship building, manufacturing of wind blades, electrical windmills, automotive applications, etc.

Company description

Thirumalai Chemicals, the flagship company of the Thirumalai Group, is the 2nd largest manufacturer of Phthalic Anhydride (PAN) in India with a market share of ~40%. PAN is a downstream product of Orthoxylene (OX), a basic Petrochemical. PAN is used as an intermediate for the production of Plasticizers, Unsaturated Polyester Resins, Alkyd Resins and Polyols. PAN is used in a variety of applications in both consumer durables and non-consumer durables. Applications for PAN are increasing rapidly, driven by new research and innovation. While PAN contributes the bulk of revenue, the company also manufactures value‐added derivatives such as Maleic Anhydride (MAN), Diethyl Phthalate (DEP), and food acids. The company’s manufacturing facility is located at Ranipet (Vellore district) in Tamil Nadu. The annual installed capacity is 1,45,000 MT. The company has a wholly owned subsidiary, Optimistic Organic Sdn Bhd in Malaysia, which manufactures Maleic Anhydride (MAN).

Profit & Loss Statement:- (Consolidated)

(Rs Crores)

Particulars Mar-14 Mar-15 Mar-16 Mar-17 Mar-18E Mar-19E
Net Sales 1,268.9 1,065.4 944.2 1,032.8 1,177.3 1,343.6
Other op income 7.3 6.8 - - - -
Total revenue 1,276.2 1,072.3 944.2 1,032.8 1,177.3 1,343.6
Growth (%) - -16.0% -11.9% 9.4% 14.0% 14.1%
Total Expenditure 1258.9 1082.0 846.3 874.8 983.1 1117.9
EBITDA 17.4 -9.7 97.8 158.0 194.3 225.7
EBITDA (Margin %) 1.4 -0.9 10.4 15.3 16.5 16.8
Other Income 4.6 8.2 5.2 4.1 4.0 3.8
Operating Profit 22.0 -1.5 103.0 162.1 198.3 229.5
Interest 4.9 3.5 23.1 16.7 13.0 10.0
PBDT 17.2 -5.0 80.0 145.4 185.3 219.5
Depreciation 2.3 1.8 25.1 36.2 35.0 34.0
Profit Before Taxation & Exceptional Items 14.9 -6.8 54.8 109.2 150.3 185.5
Exceptional Income / Expenses 0.0 0.0 0.0 0.0 0.0 0.0
Tax 3.0 6.9 22.7 38.7 48.5 59.5
Profit After Tax 11.9 -13.7 32.2 70.6 101.8 126.0
Share of Associates 0.0 0.0 0.0 0.0 0.0 0.0
Report consol PAT 11.9 -13.7 32.2 70.6 101.8 126.0
Adjusted PAT 11.9 -13.7 32.2 70.6 101.8 126.0
EPS 11.6 -13.4 31.4 68.9 99.4 123.1
Source: Stockaxis Research, Company Data


TCL has leadership position (2nd largest) in terms of capacity and costs in the domestic PAN market. The company is well positioned to benefit from structural triggers in this industry, going forward. Though TCL is a commodity player, large entry barriers, margin improvement trend and large Indian market share could result in further rerating of the stock going forward. We expect revenues/PAT to grow at 14.1%/33.7% CAGR over the next 2 years (FY17-19E). We value Thirumalai Chemicals at 20.2x FY19E EPS of Rs. 123.1 and recommend a ‘Buy’ with a target price of Rs. 2,500 giving an upside of 101%.