Omkar Speciality Chemicals Ltd – Alchemy of Fast Growth!! HBJ Capital (04/10/2012)
Omkar Speciality Chemicals Ltd. (OSCL) is a Mumbai based producer of speciality chemicals and pharma intermediates, catering to various industries like Pharmaceutical, Chemical, Glass, Cosmetics, Ceramic Pigments and Cattle & Poultry Feeds. With a strong customer base that includes Cipla, Ranbaxy, Glenmark, Dr Reddy's etc, the OSCL derives about 90% of its total revenue from the domestic market. It has basic research capabilities and has recently acquired M/S.Rishichem Research Ltd, as a wholly owned subsidiary to provide a total R&D back-up to the Company for all its future expansion and diversification programmes.
OSCL has an assorted product portfolio consisting of a mix of organic, inorganic and organic inorganic intermediates, with more than 90 products in these segments which can be broadly classified into iodine, selenium, molybdenum derivatives and others. It is a major player in iodine and selenium derivatives which alone contributes close to 90 per cent of gross sales.
OSCL is serving the needs of the customers in two segments, namely pharma intermediates and specialty chemicals and that’s roughly in the ratio of 3:1 and considering that Indian pharmaceutical industry is poised to reach $44 billion by FY’14, the company has a bright future. The domestic specialty chemicals market is expected to grow @15-17 per cent per annum to hit $80-100 billion mark by 2020. Company currently has four units, Unit-I, Unit-II, Unit-III and Unit-IV at Badlapur, Thane.
Niche products: Majority of sales growth through manufacturing niche value-added organic and inorganic chemicals like selenium anhydride that finds its usage in the steroid manufacturing, 5-Iodo-2-Methyl Benzoic Acid which has application in anti-diabetic drug where it doesn’t have competition. The company is also expanding its product portfolio into retroviral protease inhibitors (anti HIV) & oncology space through its Unit-IV.
Growth Driver: The company proposes to setup a new plant in Maharashtra with the capacity of 1,250 MT for API’s and its intermediates. It intends to manufacture new molecules with new technologies consisting of catalytic high-pressure reactions. Further OSCL will captively consume its pharmaceutical intermediates for manufacturing its indigenously developed API products. It will be a significant growth driver for the company as currently it is providing only intermediates and moving into API will provide higher value addition. The company is moving up the ladder with focus to cement its place in India pharmaceuticals industry.
Capacity expansion would ensure volume growth, OSCL is aggressively escalating its specialty chemical capacity to over 3,650mtpa by FY’13 from 950mtpa presently, as the latent demand is expected to remain robust on the back of strong growth expected in end user industries of OSCL.
The Company is moving on higher ladder with foray into API’s with application in high growth end therapeutic markets like HIV & oncology. With intend to produce new molecules for API’s, it has acquired 99.82% stake in Rishichem Research Ltd for 13 million in FY’10. One can expect revenue realization from this segment from Q3FY’12 with higher margins.
OSCL’s product portfolio comprise of more than 90 products and with new product introductions and operating leverage due to the ongoing capacity expansion, expect net profits to grow at a CAGR of more than 50% over the next two years.
Omkar Speciality Chemicals recently forayed directly into pharmaceutical business with its recent acquisition of LASA Laboratory located at Mahad in Raigad district, which has been an established player in the anthelmintic/veterinary API segment with state-of-the--art API manufacturing facility.
Company had come out with IPO at Rs.98/= and the scrip has run up a lot from 52 week low of Rs.49.75 and last traded price was Rs.86.4 per share.
The 5 year top line and bottom line CARG stands impressive at 31.36 pc and 45.67 pc.
The company has done pretty well in Q1FY13 – the total income stood at Rs.50.3 crs and PAT was Rs.5.2 crs [ in Q1FY12 the corresponding figures were Rs.42.5 crs and Rs.4.02 crs.]
Gross Asset base has expanded by roughly 18 times in 5 years and that too without Equity dilution. Moreover the company is debt –free on Net Cash basis. Total Cash & Total Debt outstanding as at end fiscal FY12 was Rs.31.4 crs and Rs.5.7 crores respectively.
The Marketcap to Sales stands at around 0.9X as compared to 0.75X of BASF. At CMP of Rs.86.45, the Marketcap stands at Rs.168 crores. The 52 week high-low was Rs.88.80 and Rs.49.75. The last traded price was Rs.86.45 as on 30 September 2012.
Promotor’s holding is robust at 60.16 per cent. Institutions own 10.81 per cent. Sometimes in Oct’ 2011, Omkar Harlekar & Pravin Harlekar bought 6000 shares @Rs.67.86 which is a positive sign.
Although Omkar Speciality Chemicals Ltd operates in an industry that is pretty fragmented, the company is well poised to leverage its key strengths of large diversified product portfolio, high quality of products and well established relationship with manufacturers of pharmaceutical and speciality chemical products, thus fortifying its strength in the Indian market in which it sells roughly 92 per cent of its products. Accordingly, forex risks and slow down in Eurozone and elsewhere will not in any way severely impact growth and profitability of the company. Moreover, with the increase in outsourcing to India by MNCs, the exports market is expected to give boost to OSCL’s API initiatives.