Recently researched this stock and my views –
Pine Rosin (which comes from Pine tree tapping industry in Brazil) is going through a sharp downturn. Brazil pine oleoresin supply to fall further in 2024 | Latest Market News This has reduced supply of raw materials in the synthetic camphor supply chain. Lower Pine Rosin production implies lower Gum Turpentine which goes into Camphor production. This is why the cycle is turning. The last upcycle was from mid 2016 to mid 2018.
If we go through the article I shared above – “With selling prices sometimes below production costs throughout this year, many smaller pine oleoresin suppliers have ended forest lease agreements. Even if pine oleoresin prices increase, allowing for higher margins, it would take time for the producers which left the market to reactivate the forests and increase availability to the market. Reactivating a forest takes about six months as tappers need to prepare the extraction of the raw material months in advance, according to a source.”
Please note the exports of Pine Rosin now is the lowest in the last decade. Low exports coincides with cyclical bottoms in Camphor and Gum Turpentine prices.
Now, coming to why Mangalam Organics, the company’s retail products are growing at a rapid rate. A consumer brand with 160cr sales and growing 60% YoY is probably worth 500-700Cr in valuation, compared to the total market cap currently which is 550Cr. The company has also doubled capacity recently and capacity wont be a bottleneck in the upcycle. At peak capacity utilization in an upcyle, revenue will be ~800-1000Cr. If margins are similar to last upcyle which was around 20-25%, book value for Mangalam Organics will double in 2-3years. In last upcycle, the stock traded at 5-6x Price to Book Value at Peak. All this is contingent on the cycle turning for a few quarters.
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