Monday, April 11, 2011

Chembond Chemicals Ltd-All in One !

Incorporated in 1975 by Dr. Vinod Shah, Mr. Ashwin Nagarwadia, and Mr. Parviz Dastur,Chembond Chemicals Ltd; which is currently in its 36th  year of operation, is a Specialty Chemicals manufacturing & marketing company
Financial Highlights:
Equity [Face Value per share of Rs.10]: Rs.6.36 crores
Consolidated Debt: Rs.22.65 crores ( as of March 31, 2010)
Liquid assets ( FD in bank): Rs.8.57 crores ( as of March 31, 2010)
Market Cap:  Rs.117 crores (as per price of Rs.184 on April 11,2011)
Enterprise Value = Market Cap + Debt-Cash = Rs.118.4 crores
Promoter Holding: 66.48%
Consolidated figures for year ended March 2010:
Revenue: Rs.178 crores
Net Profit: Rs.14.5 crores
EPS: Rs.19.49
Dividend per share: Rs.1.75
Consolidated figures for 9-months ended Dec 2011:
Revenue: Rs.156 crores (20% growth y-o-y)
Net Profit [provisional]: Rs.9.6 crores (3% growth y-o-y. NP growth figure seems disproportionate with sales growth as there was an element of other income of Rs.1.10 cr in the 9-months ended Dec 2009)
Key Business Highlights:
 1] The primary business of Chembond is manufacture & marketing of Construction chemicals, coatings - anti-corrosive paints and specialty enzymes.  
 2] The company has 3 key Joint Ventures: 
a] Henkel Chembond Surface Technologies Ltd is a 51.01% [Henkel, Germany a Fortune 500 company with approx USD 21 billion in sales]: 48.99% [Chembond] JV which is into manufacturing of metal pre-treatment chemicals used in the automotive, auto ancillaries, steel & coil, appliances & general industries. 
b] Chembond Dewtreat is a 54.99% [Chembond]: 45 %[Ashland, USA: a Fortune 500 company with approx USD 10 billion in sales] which is focused on water treatment chemicals for cooling water & boiler water serving mainly Power, Fertilizer, refining, Pharma, chemical & steel industry.
C] H2O Innovation India Ltd is a 51% [Chembond] :49% [H2O Innovation, Canada]  offers equipment based solutions for water treatment, recycle and reuse.Reverse osmosis and Desalienation plants form the core product offering.
  3] Chembond’s head office is located is at Mahape, Navi Mumbai. Chembond’s manufacturing and blending plants are at Tarapur (Maharashtra), Baddi (Himachal Pradesh), and Dudhwada (Gujarat). Additional blending plants are in Chennai and Balasore (Orissa). It has its warehouses and branch offices in Ahmedabad, Bangalore, Delhi, Faridabad (Haryana), Jamshedpur (Jharkhand), Kolkata, and Pune.
4] The Company has a consistent, uninterrupted dividend record since inception in 1975.  
Future prospects:
1] Construction chemicals manufactured by Chembond are used in large infrastructure projects. Notwithstanding the current slowdown, the huge construction activity all over the country is likely to keep the demand for this product very strong. 
2] The anti-corrosive paints and coatings are formulated to suit tropical & industrial conditions & find use mainly in thermal power, refining, chemical, paper & pulp & soap & detergents industry. The demand from these user industries is expected to remain stable. The water treatment chemicals business also has a bright future.
3] All the 3 JV’s companies are expected to do well in the coming years. Though it is early days for H2O Innovation,the product portfolio holds tremendous promise.
4] H2O Innovation India inaugurated last month a 10,000 sq. ft. manufacturing plant near Vadodara,  Gujarat,. The plant’s manufacturing capabilities are equivalent to those of the JV partners  plants located in Ham-Nord, QC and Minneapolis, MN. This production capacity will enable H2O Innovation India to locally ensure detailed engineering, together with assembly, welding, pipe fitting, in-house performance testing and programming, among other operations. During its first year of operation alone, H2O Innovation India was awarded contracts totalling $4.2 M for the supply of industrial water treatment systems and equipment for industrial customers (including the contracts valued at $2.2 M announced on June 8, 2010). As of April 6, 2011, H2O Innovation India’s sales backlog stands at $2.6 M for Indian projects only
At the current market price of Rs.184, Chembond –directly and through its JV’s offers an excellent proxy plan on the Construction and Auto sector and a direct play on Total Water management solutions.

At the time of writing this report, the author /his family have an investment interest in the stock mentioned above. Under no circumstance does the information in this report represent a recommendation to buy or sell the above-mentioned stock.  This report has been prepared and issued on the basis of publicly available information, internally developed data & other sources believed to be reliable. This is just a suggestion solely for information purposes and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Readers using the information contained herein are solely responsible for their actions and are advised to satisfy themselves before making any investments.

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