The Junior Aarti Industries in Making? – Valiant Organics Company Analysis

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Overview

Started as a single product manufacturing in 1984, Valiant Organics Ltd. is now one of the most competitive producers of Chlorination, Ammonolysis, Acetylation, Hydrogenation, Sulphonation and Methoxylation based speciality products in India. India is the 6th largest producer of chemicals in the world.

According to the Federation of Indian Chambers of Commerce and Industry (FICCI), the market size of India’s chemicals industry stood at USD 178 billion in FY 2018-19.

Company’s 85% revenue comes from the domestic business while 15% from exports.

Company’s products find applications in several industries such as agrochemical, pharmaceutical, rubber, and dyes and pigment industries, and veterinary drugs manufacturing.

Chemical Industry Breakup

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Description automatically generatedSource: FICCI

In FY 2019-20, India had a chemical trade deficit of `1.1 lakh crore. This indicates the growing domestic demand and the availability of cheaper import options.

The size of the Indian chemical industry, led by the Indian Chemical Council (ICC), is expected to increase to USD 300 billion by FY 2024-25 if the proposed infrastructure and policy changes are implemented by the Government.

India’s Specialty Chemicals Industry

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Source:FICCI

Speciality chemicals constitute about 22% of total chemicals and petrochemicals market in India.

According to the Federation of Indian Chambers of Commerce and Industry (FICCI), the Specialty chemical industry in India had a market size of USD 36 billion in FY 2017-18. It is projected to record a demand growth of 12% to 14% during the next five years.

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Company’s Revenue Break-up Industry-wise

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USPs

Resilient Business: Wide product portfolio, domain expertise in multiple chemistries, and a client base spread across multiple industries and countries,

Integrated Operations: Multipurpose plants enable the company to manufacture a wide array of products and customise them as per the needs.

Strategically Located Plants: Manufacturing plants are strategically situated near the ports, providing a locational advantage, significant logistical cost efficiencies and better delivery timelines

Established Supply Chain: Continue to develop in-house process technology to broaden our product value chain and by way of backward integration. This ensures the availability of adequate and quality raw materials and uninterrupted production.

Also Watch: Valiant Organics Listing Ceremony

Manufacturing Capabilities

The Company has 5 manufacturing facilities in the state of Gujarat:

Manufacturing Facilities Process
Sarigam Chlorination
Tarapur Ammonolysis
Vapi Ammonolysis
Jhagadia Hydrogenation, Hydrogenation with condensation and Methoxylation
Ahmedabad Sulphonation and Acetylation

Company is taking up backward and forward integration through strategic expansions. Also, improving efficiency and implementing Distribution control system helped them to maintain consistency in quality while reducing costs and time.

Management

Mr Chandrakant V. Gogri (Chairman Emeritus)- Mr Gogri is a stalwart in the Indian chemical industry and the founder of the Aarti Group of Companies. He possesses 5 decades of experience and expertise in the areas of projects, operations, process development and local & international marketing.

Other Key Persons: Mr Arvind K. Chheda (Managing Director), Shri Velji K. Gogri (Chairman – Independent Director). Promoters hold 47.79%, increased from 45.96% in April 2019.

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Financials over the years

As we can see from the above chart, financials of the company took a quantum leap forward in the financial year 2018-19.

It was made possible because of deep domain knowledge, a specialised business model, and competitive advantages on which the company worked towards achieving synergistic growth during FY 2018-19.

Capacities were augmented and operational efficiencies improved, alongside the launch of an extensive range of innovative products and speciality chemicals.

PAT has increased from around 16 Cr in FY18 to 138.5 Cr in FY20 showing the spectacular 765% increase in 2 years. Same goes with other important parameters like Revenue, Net worth, Capital expenditure, EPS to name a few.

  • Currently, the major growth drivers for the company are:
  • Improvement in the standard of living, increase in per capita income.
  • Growing Capex in the domestic market and Make in India campaign.
  • Growing consumption of processed and packaged food.
  • Increase in demand in end-user industries like food processing, personal care, and home care.
  • Consolidation in Chinese chemical market.
  • Shift of manufacturing base from China to India and growing export opportunity.

Also, the company has shown tremendous improvement in working capital days over the years even after expanding the business. D/E ratio has been in a fair range seeing the business expansion of the company.

DE Ratio 0.04 0.01 0.01 0.21 0.31
Working Capital Days 75 90 86 72 60
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Risks associated

As chemicals/specialty chemicals are global commodities, the Company is exposed to the constant risk of currency and commodity cycles. Volatility in crude prices can also impact profitability, as a large part of raw material/intermediates are crude derivatives.

Trade conflicts also pose a threat to the business by impacting the supply chain.

The outbreak of Covid-19 has caused widespread disruptions in economic activities globally including the operations in the chemical industry.

Future Prospects

India, with its low-cost advantage, is emerging as an alternative manufacturing and supply chain hub for major global economies.

Increased manufacturing capacities, coupled with R&D strengths and integrated operations, are constantly enabling the company to develop high value and margin accretive downstream products and value-added import substitutes, providing increased growth opportunities and superior revenue visibility.

Supporting the government’s “Make in India” initiative, company’s focus is on expanding and augmenting the manufacturing strengths and capacities and utilizing capabilities under PLI scheme also.

With a unique product portfolio and with integrated manufacturing operations, the company enjoys a competitive market position. With this, they cater to the diverse needs of customers from different industries and geographies and leverage the robust demand scenario.

References: Annual Reports

This post has been written by Anshul Galav for FinMedium Research Desk.

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