Yasho Industries

I See No Detail Business Analysis, hence I’m Breaking down the Business of Yasho In This Thread The Views Are more than Welcomed
Yasho Industries
Yasho Industries Ltd is a manufacturer of specialty chemicals, food antioxidants, aroma chemicals, rubber accelerators and lubricant additives.
Yasho Derives of it’s Revenue from 2 Segments Namely –

1. Consumer Chemicals
2. Industrial Chemicals

• Consumer Chemicals – Consumer chemicals Include Aroma chemicals as well as Food Anti Oxidants.
  A) Aroma Chemicals – Aroma chemicals portfolio includes Clove oil and it’s derivates. Clove oil and it’s derivates are used in basically formulations of Perfume reason being Eugenol, the main constituent of clove oil is responsible for fragrance of clove oil.
  B) Food Anti-Oxidants – Assume you want to eat the apple you slice in a half and eat it and leave the other half in open and go on to your work, Coming from office you realise that the other half of apple if probably more or less brown. This happens due to oxidation of apple with air
  Now food preservatives are used in commercial use such as Food preservation, Beverages (Juice), Processed Foods, Etc.
  This puts the end to consumer business – Consumer Business is low margin Business – EBITDA margin ranges from 6%-8% (Source – Solidarity Investment Presentation) and hence revenue from this source is 20% (FY23) and 17% (Q2)
• Industrial Chemicals –
  A) Rubber Chemicals
  B) Lubricant Additives
  C) Other Speciality Chemicals
  The Industrial chemicals is very high Margin Business – 20%+ (Source – Solidarity Investment Presentation) and hence the revenue from the segment is more than 80% in Q3 and for FY 23 it’s at 80%
  The company has taken conscious decision to shift from Consumer chemicals to Industrial Chemicals
  The same can be observed below –
  

Source – Solidarity Investment Presentation
Now since the major revenue is from the Industrial Segment and also the New Capex (Which we’ll talk about latter) is in Industrial Segment, Lets understand the business part in deep
A) Rubber Chemicals –
Manufacturing process for Rubber is something as below

1. Harvesting – Harvesting Rubber Either That can be natural rubber derived from latex sap of rubber tree or can be Artificial rubber derived from petroleum-based feedstocks
   Some of the artificial rubber are – styrene-butadiene rubber (“SBR”), polybutadiene rubber (“BR”), ethylene-propylene-diene rubber (“EPDM”).

2. Harvested rubber is then compounded (Compounding Process)-
   Understanding why do we do Compounding – it’s one of the most essential process as it involves to tailor the characteristic of rubber to meet the specification required to meet the needs of End product. It improves the strength of the natural rubber and increases it’s durability, It allows the Rubber to be Flexible helping the manufacturer if the end product to give the rubber final shape, Improves vulcanization (Vulcanization is the process for transforming the raw rubber’s molecule chain into more sustainable and elastic chain of molecules), Stabilising against various environmental factors such as Heat (Conveyor belt faces the issue hence compounding is necessary during it’s production
   Some of the Products used in compounding are –

3. Vulcanizing agents – Vulcanization process which we learnt about earlier is initiated by the this products (Agents)

4. Fillers – Improves the strength of the properties (Co-agents is one of the Product chemicals of Yasho over here)

5. Softeners – This enhances flexibility

6. Accelerators – they speed up the compounding process

7. Anti-Oxidants – As we learnt earlier the oxidation process here antioxidants protect rubber from oxygen, Rubber is a polymer it’s chemistry with rubber can cause degradation in the Quality of rubber hence Anti-Oxidants are necessary

8. Mixing – the above compound is mixed to make sure even distribution of the ingrediants

9. Shaping – The rubber compound is given desired shape and Size

10. Finishing – Additional Treatment such as cutting

11. Quality control and Packing and distribution
    Now Understanding the above process for rubber manufacturing let’s jump into the process of understanding where does Yasho’s Product Portfolio Falls
    Yasho’s Chemicals comprises of
    A) Accelerators
    B) Antioxidants
    C) Co-agents
    for processing EPDM, SBR, NBR, ECO, Acrylic, NR (Basically for all types of rubber refer manufacturing process)
    Source – Company Website
    End user are typically – Tyres Manufacturers, Conveyor Belt Manufacturers, Condom Manufacturers, Latex based products (Glove) manufacturers, Etc.

B) Pre – Dispersed Rubber Chemicals –
pre-dispersed rubber chemicals are an alternative form of rubber chemicals that offer certain advantages in the rubber compounding process.
Consider this you want to make panner ka Sabji at home – you have 2 options either you make it from scratch Cutting vegetables, making gravy, adding panner, etc.
Or you can buy Suhana ka Ready made pack and make the Sabji with less efforts
So now back to technical terms
In traditional rubber compounding, rubber chemicals such as vulcanizing agents, accelerators antioxidants, and other additives are added individually during the mixing process. In contrast, pre-dispersed rubber chemicals are formulated in advance, with the active ingredients uniformly dispersed in a carrier polymer.
Certain Advantage is that this are easy to handle rather than Traditional Chemicals as they are in powder for rather than Chemicals form
Some of the products are
i) SULFUR AND METAL OXIDES
ii) DITHIOCARBAMATE
iii) THIURAM & SULPUR DONORS, (Pre-dispersed Rubber Chemicals – Yasho Industries – GLOBAL MANUFACTURER & SUPPLIER OF SPECIALTY & FINE CHEMICALS based in Vapi – India) Website for More Names

C) Lubricant Additives – Lubricant additives are special Objects added to the lubricant (Oil) to enhance the performance of the Lubricant some of the major Products in Portfolio are

1. Antioxidants – Same as above but for machinery
2. Molybdenum-based Friction Modifiers / Antiwear Agents: Think of it this way machinery has lot of friction inside it to cause the smooth functioning and not to cause the brake down Molybdenum-based Friction Modifiers / Antiwear Agents are used
3. Di thiocarbamates: this protects your machinery from any scratches
4. Thiadiazoles – This protects the machinery from rusting and protects from any damage from water
   End Users are Turbine and Engine oils, metal working glass Cutting (Source – Solidarity Investment Report)
   D) The company also has API Business Division but couldn’t get any figures around it nor the business

Entry Barrier – Source (Solidarity Investment Report)

Business and Financial Statement analysis
The company has generated more than 25% of CAGR Growth in revenue in past 6-7 Years, increased the margins from 11% to 17% Now aiming for 20% and Upwards (Q1-Q2 Concall)
Improvement in ROCE is also Backed by Change in the product mix one can See ROCE Shoot up from single or Low teens to now Mid twenty
The company undertook the Capex in 2020 and continued for minority Capex improvements, Causing the business to be more or less Stagnent in terms of Volume where as value per molecule kept on changing
Q1 company took on inventory loss due to this however this was majorly a Anomaly (Q1 Concall)
Management is very prudent and Seems to Walk the talk.
The company has the History of performing at the Optimum capacity
The company has undertaken a Huge capex for Industrial products which will go Live in start of FY 25 However the trial production was started Post Diwali (Q2 Concall)
Management has the Quite a good confidence that the Capacity will utilise in 2 Years Or will be performing at atleast 75% of the capacity (Q2 Concall post which in completion of FY26 they will announce the Phase 2 of Capex in Pakhajan (there is still land available after Phase 1 completion
Hence the prudent management not Giving up the cashflow all at once
The management is Very Confident on Back of pending inquires of the clients – Q1 Concall They are Waiting for the Capacity to go live to start ordering from Yasho
One thing to note is that this story will take Loooong time to Play Out, this isn’t one or two Years story
Even management has stated that most probably this year revenue will be flat Q2 Concall and hence In My opinion Following Year FY25 Thoda bhot growth hone start Ho sakta hee

Disclaimer – Not invested Might Look it up to do so in few Days through SIP Since this story will take time to even Start