NGL Fine Chem-Re Rating Possible?

Hello All,

I attended the AGM of NGL Fine y’day and here are my key takeaways,

• The co. is not looking to add products aggressively,will commercialise two products its been working on for almost a year,one each in Human API and Vet API.
• End-use of Vet APIs is targeted towards Cattle.
• The co. is focused on products that’ve a small market size,it doesn’t want to focus on areas where biggies would enter. It’s happy to have 15-20-25% type market share in products with market size of 15-20-25 or roughly 50 crs. One of its products contributed 20-22.5 cr sales out of total sales in fy15 and the rest was from other 10-12 products. It has maximum 6-7 competitors in each product category and the market size along with competitive structure has remained static.
• New products are also selected on the basis of small size that would discourage biggies to enter and that belong to chemical family of existing products,not on the basis of opportunity size or scope for higher margins.
• The co. faces competition from China in Animal API space apart from Sequent (Alivira) and Omkar (Lasa) in India and a couple of other small players. The co. is unfazed about yuan devaluation.
• Pricing for some products is done on contractual basis and some products are priced as per prevailing prices in the market. Margins would be in the range of 13%-18%,the range indicating worst and best times.
• Top 10 customers contribute around 40% of the revenues,Top 5 contribute around 25%. All sales of co.’s products are to non-regulated markets directly or may be routed through a distributor based in another country. LatAm,Africa,SEA and neighbouring Indian countries are main end-user markets,the co. exports to 35 odd countries in total. Co. sells to 4/10 top Animal Health formulations cos. Majority of sales done in India are for Human APIs.
• The co. plans to do a CAPEX of 20 crs. in 1-2 years to install an R&D facility and expand capacity by 40%. Current R&D facility has 10 employees,2 PhDs,needs new facility to do more work.
• Management doesn’t like to think in terms of long-term vision or goals,thinks in terms of 1-2-3 year time-frame. It expects to grow at around 15-18% types rate at best. The co. became big in last 10 years due to expansion in market size of its products which were very tiny at that point in time. Further,growth will not come from expansion in market size of existing products significantly but by addition of new products,which the co. plans to do slow and steady.

Overall,I found the Management quite conservative,looking to maintain existing position more than growing.

P.S. – The management also intends to develop a new product for paints industry,its entered into a tripartite agreement with two British cos,the product is just a gamble on some regulatory change envisaged in near future,will be a new line of business if things work and will put up separate capacity for the same but at the moment its just a wild bet. Missed knowing if the product is being developed for international or local market.

Disc. – No investments in the co.