Ultramarine Pigments – Flash Equity Research Report

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History/Business

Chennai based Ultramarine Pigments is part of THIRUMALAI Group and one of the leading manufacturers of pigments and surfactants. The company is over 50 years old and currently has two manufacturing capacity units in Tamil Nadu at Chennai and Ranipet.

PIGMENTS: (Pigments are coloring matter of animal or plant tissue)

Used in Paints, Plastics, inks, laundry, cosmetics, etc.

The company manufactures inorganic pigments such as Ultramarine Blues, violets, Bismuth Vanadate (Pigment yellow), and various metal oxides.

Inorganic Pigments: are crystals of metal compounds or comprise most of the Earth Crust.

World’s largest Manufacturer of Ultramarine Blue which is found as stone Lapis Lazuli used extensively in the plastic industry.

SURFACTANTS ( “Surface Active agents”) which reduces the surface tension of the liquid in simple words allow for increasing spreadability of liquid)

Used in detergents, fabric softeners, motor oils, soaps, paints, inks, adhesives, etc.

Both Pigments & Surfactants come under Segment Laundry & Allied Products which form 85% of total revenue.

Other segments include IT Enables Services which accounts for 14% of Total revenue and just around 1% of Total revenue is from Windmill.

NOTE:

Interesting is Ultramarine and Pigments Ltd. holds 19.97% of Thirumalai Chemicals ltd i.e. around 123cr also

Thirumalai Chemical holds a 12.58% stake in Ultramarine and Pigments Ltd.

Management and shareholding:

  • Promoter holding stands at 52.50% with Institutional holding is around 1.37%.
  • Mr. R. Sampath is the Chairman who possess more than 50 years of experience and holds a Chemical Engineering degree from Washington State University, USA.
  • Ms. Tara Parthasarthy is the Joint MD who serves as Trustee of Thirumalai Charity, Prior to joining the company she worked at the World Resource institute on sustainable energy policy issues at the National and state level.

FINANCIALS:

  • During the 5 years from FY16 to FY20 Although revenue grew from 220cr to 306cr i.e. up 39%, profit during the same time rose from 27cr to 62cr i.e. up 2.2 times.
  • Reason for Increasing profit margin/Operating profit margin is due to improving the segmental profit of Laundry and Allied Products which rose from 16% in Fy16 to 24% in FY20 which contributed to around 85-88% of Total revenue during the time frame.
  • Needed to Highlight is Sulphonation(Surfactants) share in Laundry and Allied Products reduced from 63% in FY16 and rising to 66% in FY17 and then reducing YoY with 61% in FY20. During the same time Pigment share 31.5% in FY17 to 36.9% in FY20 after reducing in Fy17 from 34.5% in fY16.
  • Although details for Pigment product or Surfactants products margin are not available yet improving Laundry and allied products margin continuously indicates improving margin in both of them.
  • Company is continuously doing CAPEX in Laundry and Allied Products Segment as Segment assets for the segment rose from 93cr to 191cr, especially in FY20 in which segment assets rose from just 131cr to 190cr which indicates the company is foreseeing good demand for long term future
  • The above CAPEX has been done with internal accruals as the company is virtually debt-free always thus shows the company is generating healthy FCF.
  • Even after Heavy CAPEX in FY20, FCF was 5.6cr while for FY19, FY18, FY17 & FY16 were 11.4cr, 35.2cr, 20.3cr, and 9.7cr. It has never been negative.
  • CFO/PAT i.e. conversation of Pat to cash flow has been as for FY20 to fY16 it was 77%,54%,124%,95% & 101%.
  • Alpha Olefin which a key imported raw material of Surfactants is fully imported and total export sales accounted for around 30% for FY20 which results in foreign exchange gains and losses.
  • Of the Total assets company has invested around Investments around 28% as on 31st March 2020 which was as high as 54% as on 31 March 2019 major reason for declining is the market price of Tirumalai Chemical which was around 88rs around 31st March 2019 and reduced to just around 35rs around 31st March 2020 (Investment in Tirumalai chemical reduced from 182 cr to 71cr )
  • Fixed assets life comes to around 10 years excluding Capital WIP which stands at 35cr of which 18cr is P&M and 12 is Building.
  • Needed to highlight is Loans in Asset size to the tune of 34cr which is around 10% of total assets description of which says Deposits with the corporate which was just 8cr a year before (Nature of the same needs to be looked into).
  • Implementation of the expansion plan of Naidupet is delayed around 6 months due to the pandemic.
  • Surfactant Division achieved 100% capacity utilization for FY20 which may be the reason for increasing CAPEX.
  • With the Industry its product focus outlook for demand seems not at significant risk.
  • The company declared 5 rs per share dividend in FY20 maintaining a healthy dividend payout ratio of 24%.

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Arman Nahar
C.A. who is a USA CFA L3 candidate | Cleared L1 & L2 | Doing independent equity research since 2016 | Screens stocks for investment | Makes in-depth valuation models | Crafts portfolios.
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