In November 2015, I diligently reported that Ashish Kacholia and Mindset Securities (the investment arm of Nirmal Bang’s promoters) are aggressively buying the stock of Vishnu Chemicals, a micro-cap engaged in the manufacture of specialty chromium chemicals.
As there were no credible research reports available, I was compelled to conduct an analysis of the stock.
To my untrained eye, Vishnu Chemicals looked like a compelling investment because:
(i) Specialty chemical businesses are expected to boom as shown by investor interest in Sudarshan Chemicals (Vijay Kedia) and Navin Fluorine (Ashish Kacholia & Rahul Saraogi);
(ii) Vishnu Chemicals has reported blockbuster results owing partly to the takeover of Solvay Vishnu Barium from Solvay AG;
(iii) Vishnu Chemicals has a long track record of profitable growth and dividends;
(iv) The stock is quoting at reasonable valuations;
(v) The promoters hold the maximum permissible shareholding of 75% which shows their conviction in the business.
Now, Prakash Diwan of Altamount Capital is the first of the expert analysts to have taken note of Vishnu Chemicals.
Prakash Diwan has a long and distinguished track record of identifying winning stocks. His stock pick, Kwality Ltd, for instance was recommended on 07.04.2015 when it was languishing at Rs. 45. Today, just 7 months later, the stock is at Rs. 141, resulting in mind-boggling gains of 214%. Of course, Prakash Diwan has had his fair share of dud stock picks as well.
Prakash Diwan has made the following salient points with regard to Vishnu Chemicals:
(i) Specialty chemicals is a niche area: It is the chemical space that has been fairly exciting for us. Vishnu Chemicals is a leading player and for a long time it has been well established and known. However, it is in the chromium chemical space which is extremely special, very few people actually participate in that domestically. They make basic chromium sulphate, potassium dichromate, sodium dichromate and chromic acid and just to make it simple, the applications are wide ranging. So, you have applications right from pharmaceutical to metallurgy, leather tanning, dyes, adhesives, ceramics, paints, pigments, etc;
(ii) Operating leverage is at play: The company has been supplying to very marquee customers across all continents except for Antarctica and a lot of business also goes to China and that is in fact one of the reasons why the last couple of years have been slightly dull. What is exciting about this company’s current state of affairs is, it has already shown some very good profits for the first half. We have seen not only as a revenue, the topline which was about Rs 480 crore last year, it has already gone to Rs 230 crore which is an 18 percent year-on-year (Y-o-Y) improvement. However, the profitability has gone up 110 percent in that same period. So, that operating leverage is now kicked in which was not there till about early last year. So, for the next few years, if you even expect sales to grow at a 12 percent modest rate, the profits will grow at about 44-45 percent and that is going to be the big change here;
(iii) Valuations are reasonable: Interestingly it is not even valued very expensively. FY’17 it is valued at about 15 times current market price (CMP). The CMP is discounted only 15 times the EPS which we expect it to be just at 12 percent incremental growth. When we spoke to these people, actually they said that if things go well, they could start utilising our 100 percent capacity. Right now it is just about 47 percent and they could clock Rs 1,000 crore of topline as well;
(iv) Strong dividend track record and very good corporate governance: Vishnu Chemicals is a decent company with Rs 500 crore market cap, very strong dividend track record and very good governance and they have established presence in all these markets. So, I think it is a company that people will kind of start discovering because this ‘Make In India’ campaign is focusing a lot on putting these chemical companies on the forefront. So, rerating probably at Rs 520 in the next 6-12 months should be a good bet.
So, it does look like Ashish Kacholia and Nirmal Bang knew what they were getting into when they made the aggressive investment in Vishnu Chemicals!