Fundamental Analysis of Himadri Speciality Chemical: From a plant or a pencil to a diamond or even the human body, Carbon is found everywhere. It is one of the reason why Carbon is known as the VIP of the Periodic Table. It is the most important element known to humans. The significance of this element cannot be understated, especially considering its major role in our entire ecosystem.
In this Fundamental Analysis of Himadri Speciality Chemical, we look at the company’s operations, its financials, future plans and more…
Table of Contents
Fundamental Analysis of Himadri Speciality Chemical
Today we will learn about one such Company that harnesses this essential element to build industrial-grade products for a better tomorrow. The Company has a diversified chain of products, majorly revolving around the use of carbon as its primary element.
Today, we will learn about when the Company was founded & what it currently does. We will learn more about its business segments and move on to fundamentally analyzing the Company and finally reaching a conclusion.
Company Overview
Himadri was founded in 1990 by commissioning a coal tar distillation plant in Howrah, West Bengal. The business has since been led by the Choudhary family in Kolkata. It is currently headed under the leadership of Anurag Choudhary, who serves as the Managing Director & CEO of the Company.
The Company transformed its coal tar business into one of the most extensive value chains across the carbon segment. It also diversified into Carbon Black, Construction chemicals, and Lithium-ion Batteries.
Himadri has 4 manufacturing plants set up in the state of West Bengal, 1 plant each in Chattisgarh, Andhra Pradesh, Gujarat, and Odisha. The Company also has a plant located in Shandong, China. These plants export to over 49 countries across the globe.
Business Segments
Himadri is predominantly a Coal Tar Pitch (CTP) manufacturer, with over 70% market share in the space. The coal tar is used as a binder in the manufacture of Aluminium Anode and graphite electrodes. The Company is the preferred supplier of a special grade of coal tar pitch for the DRDO.
The Company also manufactures high-quality anode material for the Li-ion Battery, which is used to power Electric Vehicles, smartphones, and other Energy Storage Solutions. Himadri is currently the only producer of Anode material in India, in both natural and synthetic variants of Graphite.
Himadri is also a manufacturer of Refined Industrial-grade Naphthalene. This naphthalene finds application in the construction industry as a concrete mix, which is explained in brief in the Industry Overview.
The Company is also a manufacturer of processes Specialty oils, a by-product of the coal tar distillation process. Himadri also generates electricity from the low-calorie waste gas emitted from the carbon black process.
Industry Overview
The Coal Tar Pitch manufactured by Himadri finds its applications in the Aluminium & other metals Industry. The production of steel and other non-ferrous metals requires the use of graphite electrodes in the Electric Arc Furnace (EAF) and Laddle Furnace (LF) processes.
The demand for graphite electrodes is heavily influenced by the steel industry, which is experiencing a surge in demand due to government infrastructure projects. As a result, manufacturers of steel are creating a greater demand for graphite electrodes in EAFs and these electrodes are made of binder-graded coal tar pitch.
The Carbon Black sector derives most of its demand from the automotive sector. The Tyre industry is the largest consumer accounting for 70% of the demand. Mechanical rubber goods are the 2nd largest consumer of carbon black accounting for 20% of the demand.
India is expected to witness a significant increase in the annual demand for lithium-ion batteries (LIB) over the coming years. Under the base scenario, this demand is projected to grow to 162 kilotons (KT) by 2030, while under the promising scenario, it is anticipated to reach 260 KT.
The refined naphthalene finds applications in the production of pesticides as well as a concrete mix in the construction industry. The use of Naphthalene as a concrete mix reduces the requirement for cement thereby being more environmentally friendly. Apart from just being eco-friendly, the use of Naphthalene also increases the strength of the concrete.
India’s real estate sector will reach a market size of USD 1 trillion by 2030, which will contribute 18-20% to India’s GDP. Indian Government strongly emphasizes sustainable and eco-friendly construction practices, which should boost demand for Naphthalene content in the concrete mix.
Himadri Speciality Chemical – Financials
Revenue & Net Profit
Himadri reported a revenue growth of 50%, from Rs. 2799 Cr in FY22 to Rs. 4200 Cr in FY23 on a consolidated level. Revenue growth has been really strong in the recent two years, but the Company remained a laggard from FY20-21. In a long-term perspective, the Company managed to grow by 14.66% on a 5-year CAGR basis.
Net Profits of the Company skyrocketed from Rs. 39 Cr to Rs. 216 Cr, a staggering growth of 4.53x. This growth was the result of a significant jump in sales, along with a marginal decrease in Material costs. However, the Company is yet to beat its 5-year high of Rs. 324 Cr in FY19.
| Fiscal Year | Net Sales | Net Profit |
|---|---|---|
| 2023 | ₹4,199.81 | ₹215.85 |
| 2022 | ₹2,798.53 | ₹39.05 |
| 2021 | ₹1,693.50 | ₹47.26 |
| 2020 | ₹1,813.78 | ₹205.35 |
| 2019 | ₹2,430.15 | ₹324.23 |
| 5-Year CAGR | 14.66% | -9.67% |
Profit Margins
Operating Margins of the Company increased significantly growing by ~400 Basis points, from 5.79% in FY22 to 9.78% in FY23. This shows that the Company was able to cut down its operating costs, while not passing down these benefits to its consumers.
Net Profit Margins increased by over 265 basis points, from 2.33% in FY22 to 4.98% in FY23. Although these figures look good on a year-to-year basis, in the long term the Company has definitely fared better. It is still below its 5-Year Average of 6.97%.
| Fiscal Year | Operating Profit Margin (%) | Net Profit Margin (%) |
|---|---|---|
| 2023 | 9.78% | 4.98% |
| 2022 | 5.79% | 2.33% |
| 2021 | 22.01% | 13.38% |
| 2020 | 13.79% | 11.37% |
| 2019 | 5.83% | 2.81% |
| 5 Year Average | 11.44% | 6.97% |
Return Ratios
Return on Capital Employed improved significantly growing from 5.57% in FY22 to 15.48% in FY23. The growth in RoCE came as a result of a 1.56x growth in EBIT, compared to a 43% & 17% growth in Reserves and borrowings respectively. The company’s 5 Year Average is at 13.41%
Return on Equity also saw a greater increase, growing by over 663 Bps, from 3.71% in FY22 to 10.34% in FY23. RoE figures were just marginally ahead of its 5-Year Average of 9.68%. Himadri has to increase this ratio to at least 15% to be a reasonably strong stock to invest in.
| Fiscal Year | RoCE | RoE |
|---|---|---|
| 2023 | 15.48% | 10.34% |
| 2022 | 5.57% | 3.71% |
| 2021 | 5.02% | 19.87% |
| 2020 | 13.68% | 11.84% |
| 2019 | 27.28% | 2.64% |
| 5 Year Average | 13.41% | 9.68% |
Debt Analysis
The Company’s Debt to Equity (D2E) in FY23 comes around 0.09x, a 5-year low for the Company. D2E reduced even as the Company raised funds via debt, due to a greater increase in Equity. Himadri’s debt level is quite low giving it more advantage to make use of leverage to fuel its future ambitions.
The interest coverage ratio (ICR) came to around 8.39x, the highest in the past 5 years. A constant increase in ICR has been giving the Company a strong cushion to furnish its interest obligations. ICR of greater than 1.5x is a good measure for any Company.
| Fiscal Year | Debt / Equity | Interest Coverage |
|---|---|---|
| 2023 | 0.09 | 8.39 |
| 2022 | 0.17 | 5.61 |
| 2021 | 0.20 | 4.50 |
| 2020 | 0.40 | 2.90 |
| 2019 | 0.3 | 4.60 |
| 5 Year Average | 0.23 | 5.20 |
Fundamental Analysis of Himadri Speciality Chemical – Key Metrics
The Key Metrics of Himadri Speciality Chemical (HSCL) are given below.
| Particulars | Amount | Particulars | Amount |
|---|---|---|---|
| CMP | ₹240.15 | Market Cap (Cr.) | ₹10,322 |
| EPS | ₹5.13 | Stock P/E (TTM) | 42.8 |
| RoE | 10.34% | RoCE | 15.48% |
| Promoter Holding | 44.86% | FII Holding | 5% |
| Debt to Equity | 0.09 | Price to Book Value | 5 |
| Operating Profit Margin | 9.78% | Net Profit Margin | 5.17% |
Future Outlook
- Himadri is currently exploring the Lithium-ion Battery (LiB) segment in India. It will be focusing its R&D capabilities towards the creation of new products in the segment.
- It is working on the creation of a Silicon-based Anode that can store ~9x more lithium ions as compared to graphite, enabling higher-density energy storage.
- The R&D lab is currently researching a Next Gen Iron-based Cathode, with higher capacity. Upon commercialization, this would help reduce the dependence on Lithium & other precious metals.
- A rapid rise in global demand for aluminum has led the Company to expand its Coal Tar Pitch production to meet the needs of its customers.
Conclusion
As we conclude our article on Fundamental Analysis of Himadri Speciality Chemical, Himadri Speciality Chemical is a pioneer in the carbon segment as it manufactures a vast variety of products from processing coal tar to making anodes for lithium-ion batteries. It is currently shifting focus towards the electric vehicle market. However, it is predominantly a coal tar pitch manufacturer, with a majority market share.
Upon reading the Annual Report of the Company, we were unable to find a clear breakdown of each segment, based on revenue or Net Profits. That would’ve helped us understand segments in greater depth.
The business seems quite cyclical with margins heavily dependent on raw material prices. As of FY23, 78% of its revenue is expensed as material cost leading to single-digit margins. An improvement in these costs can translate to a significant increase in returns to shareholders.
The future outlook does look quite promising, the business is bound to benefit from the Electric Vehicles segments. However, it seems to be in the earliest stages at the moment. So, do you think the Company will be able to maintain its lead in the Anode & Cathode market? Let us know in the comments below.
Written By Nasir Hussain
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Really like the information on Himadri speciality….
Yes. It’s really helpful information for stock investors. Thank you.
Nicely analysed the financial and fundamental statistics by the author. It gives an ample proof of company’s growing stature and the very best share value.
Thanks for the informative article presented by you.
No great analysis just routine figures presented.These are available online.
A balanced presentation giving lead ideas and aspects of potential growth for adequate feed back for an investor.
Details of balance sheet data have also been given in the sequential narration.Expect such notes in the future also.
100% सही जानकरी आप से मिली आशा है आप आगे भी ऐसी जानकारी उपलब्ध होगी धन्यवाद
Projected analysis with actual achievements not given which will show the actual performance of the management.