Posts in category All News
I proposed Rahul Gandhi be Leader of Opposition, says Karnataka CM Siddaramaiah (26-06-2024)
These 10 financial services stocks hit 52-week highs; rallied up to 30% in a month (26-06-2024)
Gujarat Fluorochemicals: A hidden fluorine story (26-06-2024)
I recently got an opportunity to interact with a middle management person from Gujarat Fluorochem. Below is a summary of the brief discussion. It was a casual conversation and not an interview. I am recalling the conversation in form of Q&As only for the sake of clarity.
Disclaimer: Invested. Please do your own due diligence before investing anywhere.This post should be treated only as informational and should not form the SOLE BASIS for investment.
In what capacity did you work with the company
I was General manager (technical sales) looking after South East Asia region and handling the polymer division of the company.
How has been your experience in the company
It was a good experience. Company has a “take it easy” culture. There is no sense of urgency within the company and very little pressures to meet sales targets. Management seems confident in their decisions and does not interferes with the day to day workings which helps maintaining a relaxed environment. Most people who join the company stay for a very long time. Firings are very less. Compensations are acceptable but not very high and the promotions are mostly like in government organizations.
What was your job
I was responsible for handling sales and collections from polymer division in south east asia. My job was to understand polymer market requirements, push the products to various buyers, provide technical sales support and expand sales avenues. During my short stay of 2 years with the company, I very rarely had to explore other new buyers. The company has a well established supply chain such for the polymer division. The products are easily absorbed by the market. So much so that my job was effectively reduced to rationing the products across buyers and look after after sales technical support.
why did you quit
personal reasons, have been living in Mumbai for 15 years and wanted to shift back. also wanted to move back to oil industry (chemical engineer with ~20 years experience (Chevron, UOP, BPCL etc) in oil industry in various roles). Life in Fluorochem was quite stagnant and decision making flexibility is less. Essentially, it is a family run business and they take most decisions together with a few people in senior management.
The company claims that most of its products (PTFE, PFA, PVDF etc) are specialty of grade and they have very little exposure to commodity products. How much of it is true
Within my limited experience, i can say that it is fairly accurate. The customers are mostly fixed and a big reason for this is the proprietary nature of polymers. Their competition is mostly with big players like 3M, Chemours etc. However, one often gets to hear that many of the same products are manufactured by China also but most of their capacity is absorbed within the country. These materials are very specialized in nature and any customer can not change vendors readily which creates a stickiness in the industry. Further, while china is super efficient in manufacturing, they provide very little after sales support which is a must for these specialized polymers.
Vishnu Chemicals – Is Growth sustainable? (26-06-2024)
Case study – Will future be more consistent?
When I discussed Vishnu Chemicals with my investor friends, a very important question cropped up in many discussions.
Vishnu Chemicals’ performance till FY21 was subdued & inconsistent for past so many years and it improved only from FY22. Is something wrong with the company’s business or execution capabilities/integrity of the management? Is the company riding on only favourable external factors and improvement is temporary? Should one buy such stock for very long term?
Deep dive into the valuepickr forum and various other public information suggest that while management had hunger & dedication to grow; high debt level with high interest rates and fund crunch were big constraint in earlier years.
I appreciate that the management did not stop making efforts to change the things, despite fund crunch. Investment in Carbon Di-oxide recovery plant became a game changer move. It was delayed but when it became operational it changed the fortunes as cost of production came down. The company also gradually diversified into value-add products and added new user industries. The company set-up barium business (in JV earlier which was acquired by Vishnu later on) but high quality raw material availability was an issue. Not only raw material availability eased out later on, VCL recently acquired Ramadas Minerals Pvt Ltd, through which it can convert low-grade barytes into a superior-grade.
These efforts along with favourable industry scenario helped the company in changing its orbit. With the cash accruals in last few years along with QIP issue, gearing level is at comfortable level now. Improved balance sheet and credit rating will help in reducing interest rates. There seems to be further efforts on expanding capacity, adding derivative products, improve barium business and bring down costs on continuous basis. All this make me believe that past is behind, major issue is resolved and company should do well in future more consistently.
In my view, CFO/EBITDA, end result of capex, management remuneration, related party transactions are few important parameters to check fund leakage. In last 10 years, cumulative CFO/EBITDA is 0.62x despite 3x increase in revenue (which results in incremental working capital requirement), capex of Rs.600 cr in this period seems to be fruitful and management remuneration is reasonable. In terms of related party transactions, the company partly outsources transportation to a group company but amount is less than 0.3% of revenue per annum. Also, promoters have given interest free unsecured loans and also forgone part of interest on preference shares. Overall, the company looks clean on these parameters.
While I generally avoid companies with inconsistent performance for a prolonged period and use past performance as an important benchmark for future, here I have taken deviation due to above mentioned reasons. I believe that one should have some flexibility in his investment framework, particularly when there is strong logic to do that. Only time will tell if my logic & analysis is right and I will use the outcome as a learning for future.
Disc: Invested. I am not SEBI registered Advisor/Analyst. My view may be positively biased. I am not suggesting any investment action. The information provided above is for education purpose only.