Hey, regarding the competition bit, i completely agree that RM issue is primarily in India & foreign players might come back, however, there are 2 important things-
There are few large companies in this space like BASF, TPC group & DAELIM, coupled with some in China, but Kothari petrochem stacks up as one of the largest players globally which highlights the small/niche market size at the moment (2Bn dollar market globally)
Secondly, Kothari has had a dominant domestic market share of more than 60% for almost a decade now. This increased to 80-90% post covid owing to supply chain disruption, but there has been limited dumping issue when it comes to the business.
Based on my research, High molecules PIB contributes 65% of the total PIB market…& funnily enough the company has onlu recently ventured into this space which indicates greater potential to increase revenue in the existing molecules.
On the pricing front, the company’s positioning is improving wherein it is getting into formula linked pricing arrangement to protect its margins,however utility costs like power fluctuations was an issue in the past. Hence,.it has also started including utility costs clause in its contracts thus shielding the company from volatility to a certain extent.
While the spread has definitely improved post covid which has helped in boosting its margins, my thesis on kothari is simple-
A) Iconoclastic promoter who has turned around the business post his father’s death.His capital allocation has been beyond excellent wherein the ramp up of the new capex has been very swift & on a calculated basis.
They have earlier exited their loss making LPG business as well, which positively ticks my historical capital allocation performance check.
B) Strong growth prospects in terms of new molecules like HR PIB, high molecule weight molecules among others
C) Increased application of its products from just 2T engine oil & lubricants to masterbatches,adhesives ,rubber among others has improved the “TERMINAL VALUE” of the business significantly since lubricants is a dying business in the long run, hence, newer applications which have increased post covid will help in reducing dependence on one dying industry & at the same time contribute to higher growth due to small base.
D) Strong balance sheet wherein there is 0 debt in the business despite doubling its capacity in the past 3 years(unlike its peers who took massive leverage at the peak of the cycle).
And, Industry consolidation is just a bonus that Aids to its ROCE profile.
It is one of the very few listed companies that have maintained ROCE > 15% for the past 10 years despite difficulties.
Sources that I have referred are- AR (PAST 10-15 YEARS), all the credit rating reports, website, google search (for understanding PIB industry)
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