Oleochemicals:  Consider Galaxy Surfactants, Fairchem, Jayant Agro | CORPORATE ETHOS

Oleochemicals:  Consider Galaxy Surfactants, Fairchem, Jayant Agro

By: | April 25, 2018
Oleochemicals

Not many people may know that lot of personal care products that we use contain several fine chemicals that are not manufactured by the company selling the product but by speciality olechemicals industry. According to market analysts, India’s olechemicals market is set to surpass $2.6 bn by 2025 thanks to the robust growth of personal care industry and regulation to use green chemicals to curbing rising vehicular pollution.

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Changing life styles, more disposable income and consumer preference for organic and herbal skincare products are important factors for demand growth in Oleochemicals. They are industrially produced from animal fats or vegetable oils. They are preferred by industry because of lesser toxicity compared to petrochemical products. Various categories in oleochemicals are fatty acides, fatty alcohols, glycerin, fatty acid methyl esters and fatty amines.
Amidst the positive trends in oleochemicals industry, here is a look at the prospects of some of the listed players.

#Galaxy Surfactants Ltd (BSE:540935, NSE: GALAXYSURF) Category: Mid Cap

Galaxy Surfactants was established in 1980 and new plant at Tarapur for production of Ethoxylates, Phenoxyethanol, Sunscreens were established in 1984. The product profile includes surfactants, mild surfactants, rheology modifiers, pearlizing agents, conditioning agents, blends, proteins, quats for personal care. The company is Certified Preferred Supplier to Colgate, Start Status Supplier for Unilver, Strategic Mind Partner for Henkel, Green Channel Holder of Reckitt Benckiser. The company is led by Shekhar Ravindranath Warriar, Chairman and Unnathan Shekhar, Promoter and Managing Director.

Among the strategic strengths of the company include increasing share of speciality care products, R&D and product innovation, efforts to improve market share in mature and emerging markets.

The company has reported revenues of Rs 146.30 cr for FY 17 as against  Rs 102.7 cr in FY 16. Return on capital was 25.15%, return on net worth was 28.68%.  Return on equity 25.55%, on assets 11.38%  and net profit margin of 6.76%. it is trading at a high Price Earnings Ratio (PE) of 200 .
On technical charts, Relative Strength Index (RSI) of 50.14 indicates neutral trend, while ADX of 30.49 indicates uptrend MACD has witnessed a bullish crossover signalling bullish trend emerging.
Target: 1550 Duration: 4 weeks

#Fairchem Speciality Ltd (BSE: 530117, NSE: FAIRCHEM) Category: Small Cap

Fairchem Speciality Ltd was established in 1982 as Privi Organics Ltd while Adi Finechem Ltd was incorporated in 1985 for production of mixed tocopherol concentrate. Fairfax India Holdings Corporation (FIH) acquired 45% stake in Adi Finechem Ltd in 2016. FIH acqired 51% stake in Privi Organics Ltd and name of Adi Finechem was changed to Fairchem Speciality Ltd. Fairchem has perfected the business model of procuring waste generated in the oil refining mills and then using state of the art process equipment to isolate and purify a variety of components form the waste. They are used in the making of Dimer acid which is used in paints, printing inks. Privi manufactures aroma chemicals used in soaps, detergents, shampoos and fragrances.

The company’s business can be divided into three categories- Aroma Chemicals, Nutraceuticals and Oleochemicals.  The company reported 39.36% growth in net profit in Q3FY17 to Rs 10.74 cr while sales rose 58.95% to Rs 272.21 cr. On a quarterly basis, it has provided returns of 16.92%,  while on half yearly basis it was 15.2%.

Return on equity of 4.89%, on assets of 2.29%, net profit margin of 3.57%  are below industry standards while cash flow and liquidity are also below peer average.

It is currently trading at a PE of 126.3 indicating higher valuation by market. On technical charts, RSI of 79 indicates bullish over bought position while ADX of 40 indicates uptrend and MACD has witnessed a bullish crossover.
Target : Nil

#Jayant Agro-Organics Ltd ( BSE:524330, NSE: JAYAGROGN) Category: Small Cap

Jayant Agro-Organics established in 1992 has the widest range of castor oil based chemicals and speciality chemicals in the world. Popular products of Jayant Agro include castor oil, 12-Hydroxy Stearic Acid, Blown Castor Oil, Dehydrated Castor oil and Hydrogenated Castor Oil, glycerine among others with varying applications in cosmetics, agriculture, perfumeries, pharma, lubricants, rubber among others.

The company won the CHEMEXCIL (Export Promotion Council set up by the India Ministry of Commerce ) for outsanding export performance in 2016-17. Ihsedu Agrochem Pvt Ltd, a subsidiary of Jayant Agro was also felicitated by CHEMEXCIL for outstanding export performance.

The annual revenues for 2016-17 were  Rs 660.74 cr as against Rs 564.49 cr the previous year while net profit was 45.25 cr as against Rs 21.60 cr the previous year. The company exports 75 different products to 70 countries. The company reported net profit gain of 14.10%  to Rs 14.21 cr in Q3FY17 while sales rose 45.50% to Rs 671.15 cr.

Return on equity of 19.17%, assets of 6.61%  are comparable with industry average while net profit margin of 3.22% trails peer average. Cash flow and liquidity are comparable with peers. It is currently trading at a PE of 20.96 indicating lower valuation by market.

on technical charts, RSI of 47.50 indicates neutral trend, while ADX of 20.34 indicates range bound trade and MACD has witnessed a bullish crossover indicative of more buying activity.
Target: 376 Duration : 4 weeks.

#Indo Amines Ltd (BSE: 524648 ) Category: Small Cap
Indo Amines Ltd was established in 1992 and specialises in fine chemicals, specialty chemicals and performance chemicals. In specialty chemicals, they produce fatty acids, fatty amides, fatty amines, fatty Di-amines, fatty tertiary amines, fatty polyamines, fatty amine ethoxylates and fatty ammonium quats. The company reported 18.88% decline in net profit at Rs 2.30 cr for Q3FY18 while sales rose 44.46% to Rs 92.90 cr.  On half yearly basis it has provided returns of 6.77%.

Return on equity 24.16%, return on assets 7.33% and net profit margin of 5.12% is comparable with industry average while cash flow and liquidity ratios may cause concern. It is trading at a PE of 21 indicating lower valuation by market.

On technical charts, RSI of 53 indicates bullishness, MACD has witnessed a bullish crossover and ADX of 15 indicates range bound trading.
Target: 110    Duration : 4 weeks.

Summary
In view of the R&D strengths, export potential, domestic market potential due to rising demand from pharma, personal care, cosmetics, automotive and other segments of industry, oleochemicals market is bound to scale newer heights. Investors can gain out of selective exposure to the small and medium cap stocks in this domain.