Management has mentioned in the past that they will look to buy from GACL, it will probably not be margin accretive, but will ensure more reliable supply chain.

Investor Presentation

PORTFOLIO UPDATE!!!

DEEPAK NITRITE

Since all the excitement of China plus one strategy in Chemical Sector gained traction, I started scouting for good chemical stocks. I tracked TATA Chemicals, Aarti Industries, Deepak Nitrite, etc. but always the valuations and expectations of growth were so high that it did not make sense to invest at those valuations. In the past 1 year, the chemical stocks which ran up a lot during the covid times started correcting due to war factors, overvaluation and negative sentiments for the whole sector. But the exciting thing was that their sales and profits did not fall as drastically as the stock price. From the whole space I liked Deepak Nitrite, mainly because the correction was more than its peers but the fundamentals did not deteriorate.

Now coming to their products, 70% market share in phenol and sodium compounds is quite impressive. This may be a bit wrong, but growing investments worldwide in Sodium Ion Batteries for EVs might be positive for this company. Their increasing number of clients in India and in the Middle East will drive the topline growth consistently. Many of the chemical companies in India are their clients from Biocon to Aarti Industries. Thus any domestic growth will also benefit this company.

Now, there is no argument that this company has been a good compounder and that the management has been able to give good returns to its shareholders, even during covid times, their performance has been phenomenal. But buying this company at the right valuations is very important. Their Q1 performance was really impressive since they crossed the 2000cr revenue this quarter but the margins were under pressure due to inflation and macro economic concerns. Considering their margins at 17% and their avg margins for the last 5yrs coming at 22-25% means there is scope for improvement. A gradual increase in topline and normalization of margins is really important for the performance of this stock. Looking at the macro economic conditions, we can see some pressure on margins in next quarter at then they might normalize in later quarters. With commodity prices cooling down, crude prices below 90$, we can see improvement in margins. Considering that they maintain the Q1 topline numbers for the whole year, the topline for this year comes at estimated 8000cr, which is 17% higher than last year and considering 20% avg EBITDA margins, EBITDA comes at 1600cr, which is 60% higher than last year. Considering the Avg EV/EBITDA for last 5 years at 18.6, we come to a market cap of 28000cr. So the price per share comes at 2117 per share. So at current price, I think the valuations are quite reasonable.

Now coming to the other points that make this a good buy are their Greenfield Capex Plans, Low Debt-Equity and Positive tailwinds for the sector. Buying a company at 28 times PE with an avg profit growth of 87% in the last 5 yrs and estimated growth of 30% this year, is quite a good opportunity to invest. I have bought the stock at 2150 level but just one quantity. Will decide on making further investments after the Q2 results.

Another sports engagement after Manchester United

HCLTech, a leading global technology company, today
announced it has been named an Official Cornerstone Partner of MetLife Stadium and the official digital
transformation partner of the New York Giants, New York Jets and MetLife StadiumHCLTech, a leading global technology company, today
announced it has been named an Official Cornerstone Partner of MetLife Stadium and the official digital
transformation partner of the New York Giants, New York Jets and MetLife Stadium
https://www.bseindia.com/xml-data/corpfiling/AttachLive/90dca201-a3b5-45b0-947c-db28b154a002.pdf

Demand reduction may not be proportionate across companies. And it may not be absolute as well. It will be somewhere in between.

If it is proportionate then all companies will suffer same % of demand reduction. But for argument sake if it is in absolute terms then ‘x’ MT of demand reduction with a company of 100x capacity will be just 1% compared to 50% for a company of capacity 2x.

But yeah, integrated players could weather the situation longer while the weaker players bankrupt. And when the situation reverses, the company which survived will make a killing.

Disc: Have a tracking position in GPIL.