Mangalam Organics Ltd Fundamental Analysis

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Business Overview

Mangalam Organics Ltd is a completely debt free company engaged in the field of pine chemistry. It is not only a pioneer in this field but also a leading manufacturer of terpene and rosin derivatives.

It is engaged in the business of manufacturing of Camphor, Resin and Sodium Acetate.

Mangalam Organics Ltd Journey

Incorporated as Allied Colloids in July 1921 the company had changed its name to Dujodwala Products (DPL). It was promoted by Ramgopal M Dujodwala, Kamal Kumar R Dujodwala and Pankaj R Dujodwala.

The promoters also have interests in Dujodwala Resins & Terpenes, Dujodwala Paper Chemicals, Indo Euro Securities and Dujodwala Exports.

Ace Investor and Founder of Dmart (Avenue Supermarts) Radhakishan Damani had purchased around 2.17% stake in the company during March-June 2020 Quarter when the stock was down significantly.

However post that there has been huge run up in the stock.

Let us first understand the basic terminology for the products/business the company manufactures/or is in.

Why Camphor?

As written in our Holy books, Pure Camphor symbolises union with God as it burns completely, leaving behind no trace. Pure Camphor dispels negativity, keeps one healthy and attracts prosperity.

Significance of the Camphor Flame Camphor flame inspires the devotee to spread warmth and fragrance through ones life, burning away energetically to eventually allow the focus solely on the Almighty without any trace of existence or ego.

At the end of the aarti, one places his hands over the flame and touches his eyes and forehead which signifies “May the light which illumined the Lord light up my vision and may my thoughts be as pure and beautiful as this camphor flame”

How to check the purity of Camphor? 

Pure camphor burns completely without sparking and does not leave behind any residue or ash.

What is Camphor? 

A creation with a rich history and vibrant future is a natural product made from the extract of the pine tree.

Uses of Camphor

  • While in the Indian domestic market, Camphor is widely used for religious purposes, it has usage far and wide across countries globally.
  • Camphor also plays a vital role as the active ingredient in several orthopaedic, skin and congestion-related pharmaceuticals and leading pharmaceutical companies are increasingly purchasing camphor with more R&D being done on camphor-based formulations.
  • On the hygiene side, camphor is replacing naphthalene and PDCB in the West and is gaining increasing share of the homecare market.
  • The Camphor manufactured in China is used for hygiene and pharmaceutical uses, while that manufactured in India is largely used for pious purposes.
  • Going forward, it is estimated that India too will start using camphor for innovative hygiene products as in the pictures above.
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What exactly does the company manufacture?

Terpene Chemistry

  • Camphor
  • Dipentene
  • Sodium Acetate

Synthetic Resins 

  • Terpene Phenolic
  • Alkyl Phenolic
  • Rosin-based Resins

Company’s Reach

Turpentine, principal raw material to manufacture Camphor, is procured from across the globe: Brazil, Argentina, Chile, USA, Russia, Indonesia, Vietnam, China, Portugal, and Spain, among other countries.

Domestic sale of Camphor and Synthetic Resins takes place through its network of 8 offices across India. Its products are also exported to Europe, USA, African, Middle Eastern and South East Asian countries.

Business Segments/Products

  • B2B – Terpene
  • B2B – Synthetic Resin
  • B2C – Retail Operations

B2B – Terpene

Products

  • Camphor
  • Dipentene
  • Sodium Acetate

Applications-:

  • Camphor: Religious use, healthcare products, hygiene products
  • Dipentene: Paints, cleaning and degreasing agents
  • Sodium Acetate: Textile and dyes industry, Leather tanning

B2B – Synthetic Resin

Products-:

  • Terpene Phenolic Resin
  • Alkyl Phenolic Resin
  • Rosin Esters

Applications-:

Adhesives, Tyres, Rubbers, Chewing Gum, Printing Ink

B2C – Retail Operations

Products and Applications-:

  • CamPure – Homecare and personal care products based on Camphor
  • Mangalam – Camphor tablets for pious uses
  • Private Labelling Initiatives

Core Areas of Focus

  • Company in Terpene operations is continuing focus on yields, time cycle, energy conservation and quality of the products which has enabled company to maintain its sales volume and profitability.
  • Through its Resin operations, company continues to offer closely formulated and niche solutions to its customers, enabling regular business and healthy margins.
  • Its retail operations continue to grow, as company expands the distribution of its brands Mangalam and CamPure and as it takes on additional private labelling opportunities.

Key Clientele of Mangalam Organics Ltd

Segmental Performance and Analysis

Camphor is the primary product in MOL’s “Terpene Operations” segment. The product continues to have strong demand from the pious uses point of view and is experiencing additional increasing requirements from OTC pharmaceutical formulations and homecare products such as air fresheners.

Mangalam Organics Ltd has strengthened its quality and range which enables it to cater to a wider category of customers with different applications.

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Other products in “Terpene Operations” such as Dipentene and Sodium Acetate also continue to solicit robust demand with stable pricing.

On the “Synthetic Resins” front, company’s alliance with M/s. Les Derives Resiniques et Terpeniques did not materialise as had been envisaged, accordingly the alliance has been terminated. Going forward, MOL will be marketing its portfolio of Terpene Phenolic Resins in its own capacity on a worldwide basis.

On the whole, its “Synthetic Resin” business continues to have stable demand with suitable margins.

Retail Operations” continue to take some more shape as the revenue contribution increases.

Over the last year, MOL has registered its brands with few more Modern Trades such as MORE and Star Bazaar and continue to push existing accounts for faster growth rates.

Mangalam Organics Ltd has also expanded its general trade distribution team and will continue to do so more aggressively in the years to come.

Mangalam Organics is also well positioned on E-Commerce platforms which are experiencing high growth rates.

A major notable development has also been the creation of its first TV Commercial for Mangalam Camphor Tablets. This has been well received and has helped increase traction for the product.

Going forward, company intends to spend increasing sums of money on ATL Communications.

Company’s endeavour to unlock the saleable value of intermediates and improve the quality of Camphor is on track.

This will enable MOL to reduce its dependence on market dynamics of a single product, “Camphor” and a single industry, the pious market. MOL is hopeful that the Company will have the option to sell these intermediate products towards the later part of FY 2020-21 as a result of the work.

Company is working towards deleveraging its dependency on Camphor by developing the sale of intermediate products and delinking itself from pure commodity play by focussing on brands “Mangalam” and “CamPure”.

Company looks ahead for the future when it would be less affected by vagaries of commodity cycles.

Financials

Sales and Expenses

OPM, NPM, and ROCE

Operating Cash Flows and Net Profit

Net sales stood at Rs 374.52 crore during FY 2019-20, while our Profit After Tax (PAT) was at Rs 47.56 crore.

For the quarter ended September 2020

  • Net Sales at Rs 85.96 crore in September 2020 down 28.95% from Rs. 120.98 crore in September 2019.
  • Quarterly Net Profit at Rs. 14.33 crore in September 2020 down 11.9% from Rs. 16.26 crore in September 2019.
  • EBITDA stands at Rs. 23.11 crore in September 2020 down 17.79% from Rs. 28.11 crore in September 2019.
  • Mangalam Organ EPS has decreased to Rs. 16.73 in September 2020 from Rs. 18.99 in September 2019.
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Future Outlook of Mangalam Organics Ltd

Terpene

Going forward, company intends to focus on manufacturing and marketing high quality intermediate products to international customers: Camphene for Paint, Resin and Fragrance Applications – Iso Bornyl Acetate and Isoborneol for the fragrance industry.

Further, opportunity presents itself in the manufacture and sale of derivatives of these intermediate products.

Alpha and Beta Pinene derivatives such as Myrcene, Dihydro Myrcenol can serve as stepping stones into the world of rapidly-growing fragrance and flavours.

Once the quality of intermediate products are standardized, company will work towards manufacturing and marketing downstream products such as Pinene and Camphene derivatives, which present nicher and more specialised opportunities with healthier margins.

Terpene Phenolic Resin 

  • Company plans to increase range of terpene phenols to cater wide needs of customers in domestic market.
  • Company also plans to pursue product approvals with global tyre and adhesive customers in the domestic and export market.

Alkyl Phenolic Resin

  • Understand customer pain points and provide tailormade products
  • Company also plans to introduce wide range of quality products to enable registration with key distributors

Rosin Modified Resins

  • Explore opportunities of import substitution in adhesives and printing ink industry
  • Improve quality of products to global standards to unlock export opportunities.

Conclusion

Mangalam Organics ltd is a completely debt free engaged inCamphor, Resin and Sodium Acetate. However company had been struggling with volatile sales and profit .

But now from over past 2-3 years it seems that the company is right on the track to achieve sustainable sales and profit with operating profit margins being improved significantly.

Oriental Aromatics which is also one of the darkhorsestock suggestions one of the closest competitor of mangalam organics which is also engaged in almost similar line of business trades at a valuation of PE multiple of above 20.

Given the managements strong path for recovery alongside increasing exports and significant capital expansion going forward one can expect the company to do well and if there happens the expansion in the earnings multiples that could again add significant fuel to the returns generated over time.

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