Camlin Fine Sciences came to our attention in August 2014 when Darmesh Kant of IndiaNivesh recommended a buy. Dharmesh’s research was impeccable. He emphasized that Camlin’s finances were in ship-shape condition. In the four year period from FY’10 to FY’14, the revenue CAGR was 30%, ROE CAGR was 23%, PAT CAGR was 45% and cash accruals CAGR was 34%.
Dharmesh opined that Camlin was at an inflexion point for rapid growth in coming years.
Well, since then, Camlin Fine Sciences has surged nearly 100%.
Fortunately, Camlin Fine Sciences is still a micro-cap with a market capitalisation of only Rs. 989 crore. It recently announced the decision to set up a new manufacturing facility at Dehaj in Gujarat with an investment of Rs. 193 crore to manufacture 9,000 tonnes of Hydroquinone and 6,000 tonnes of Vanillin. The new plant would help Camlin become a major supplier of Diphenol and Catecholand Vanillin as well as its derivative and down-stream products. The project is expected to be commissioned in September 2017.
A number of stock wizards are now waking up to Camlin Fine Sciences’ potential.
Vineeta Mahnot of Hem Securities has recommended a buy with a target price of Rs. 145. Her logic is very succinct:
“With the dominant positioning of the key products, backward and forward integration benefits and sound fundamentals; Camlin Fine Sciences is poised to grow. Further, setting up and then commissioning of the new facility at Dahej would be pave the next phase of growth for the company. We believe the company is trading at an attractive valuation at 18.22x and 14.93x of FY16EPS of Rs.6.14 and FY17EPS of Rs.7.49. We initiate a ‘BUY’ on the stock with a target price of Rs.145 (appreciation of about 30%) with the medium to long term investment horizon.”
Manish Ostwal of Nirmal Bang has come to the same conclusion in his initiating coverage report. He has recommended a buy with a target price of Rs. 164 on the basis that:
“Valuation & Recommendation:
Camlin Fine reported net sales of Rs.558.3 crore in FY’15, an increase of 9.8 per cent. However, EBIDTA increased 36.5 per cent driven by better realization and contained raw material costs. Consolidated PAT for the year stood at Rs.55 crore, an increase of 91.6 per cent y-o-y.
We expect EBIDTA margin to improve from 15.1 per cent in FY15 to 22 per cent in FY19 on the back of increasing contribution from higher realization products like Vanillin and Antioxidants Blends.
We believe global leadership position in key chemicals, moving up in the antioxidant value chain and entering into the lucrative vanillin market with potential 24 per cent market share and expansion in EBIDTA margins are key value drivers for the stock performance over the medium term.
We value the share at 18x FY’18E earnings to arrive at a price target of Rs.164 (upside: 70.8 per cent) by December 2016.”
Chirag Shah and Bhupendra Tiwary of ICICI-Direct have also recommended a buy though they have projected a modest target price of Rs. 110. They say:
“Capex in Dahej to scale up business to next level…
Camlin announced the setting up of a manufacturing facility at Dahej SEZ, Gujarat at an estimated cost of Rs. 191 crore. The land for the same has been acquired for Rs. 8 crore. The new facility would have an installed capacity of 15000 MT (HQ – 9000 and Catechol -6000 MT). The Catechol, thus produced would be further used for vanillin production (capacity of 6000 MT). The fully integrated project would enable Camlin to command cost leadership and, thus, enable it to enter the lucrative vanillin market. The company expects the project to be commissioned by September, 2017 and funding to be done through debt-equity ratio of 70:30.
Success in vanillin to hold key; maintain BUY
While the bottomline growth of ~13% CAGR in FY15-17E appears modest, CFS’ next growth phase would hinge on its success in the Diphenol downstream segment foray and entry into blends business (forwards integration for TBHQ/BHA business). We maintain our BUY recommendation and ascribe a P/E multiple of 15x on FY17E EPS of Rs. 7.3/share to arrive at a fair value of Rs. 110/share.”
G. Chokkalingam of Equinomics Research is the latest to send out a buy call on Camlin Fine. His logic is “The stock has corrected sharply from its 52-week peak by anywhere from 20 to 30%. Camlin Fine Sciences has good management and it is into industrial fine chemicals and also food ingredients. They have turned around the business which took over in Europe. Now, they are setting a plant in Mexico, and are also expanding capacity in India. In FY15, they have made a return on capital employed of around 29% which is very impressive for this kind of business. so, I firmly believe that it can post about Rs. 8 EPS one year forward earning estimate and that should give a return of easily around Rs 120 which is a good upside from the current market price.”
D. D. Sharma of Risk Capital Advisors recommended a buy on similar logic as that of the other experts (see video).
So, given the unanimity of opinion amongst the savvy investors, we have to keep a close watch on Camlin Fine Sciences to see whether it does deliver all that is expected from it!