Multi Baggers

Thirumalai Chemicals Limited

Background

Thirumalai Chemicals Limited (TCL), started production of Phthalic Anhydride (PAN) in 1976 in Ranipet, in South India. The company has an installed capacity of 140,000 MTPA for PAN and is ranked amongst the largest producers of PAN in the country. Besides PAN where it is a leader, the company manufactures many other critical Industrial Chemicals like Maleic Anhydride, Fumaric Acid and Malic Acid and various Fine Chemicals and Derivatives.

Phthalic Anhydride is an important chemical, which is widely used in the manufacture of Paints, Inks and Coatings, Polyester Resins, Plasticizers and Pigments. It is an intermediate chemical which is used in the production of PVC plastics, plasticizers, paints, dyes and polyester resins. It is an internationally traded commodity and the major raw material for producing it is auto Orthoxylene. In India, the major producers of Phthalic anhydride are Thirumalai Chemicals, IG Petrochemicals, Mysore Petro and Asian Paints which uses PAN for captive consumption.

Conclusion

Thirumalai Chemicals is the largest manufacturer of PAN in the country and has been in this business for more than 35 years. The company was performing extremely well till 2008, generating healthy profits and paying generous dividends (as high as 100% in some years) to the shareholders. Thereafter, the company started making losses for one reason or another  -  worldwide recessionary conditions post 2008,  losses on account of Foreign Exchange Hedging, losses from the plant that the company established in Malaysia, coupled with dumping of cheaper products from Korea, Taiwan, Iran and Israel – all led to the facing difficult times for the company in the last 3 years.

The company has strong research capabilities and over the past few years has been transforming the Pthalic Anhydride business to globally competitive size and profitability. Due to high capital costs for setting up a new plant, there are no major greenfield plants commissioned in the past several years.

The company has a high Sales to Equity ratio (it infact has small equity capital of Rs.10.24 crores) , a slight improvement in margins can result in a significant improvement in its EPS. The fortunes of the company have seen significant change after imposition of safeguard duty by the government of India on imports of PAN. Also, with the decline in Indian rupee in recent times against USD and other currencies, imports have been largely restricted and exports have become lucrative, thereby benefitting the domestic manufacturers. We would however like to caution that Thirumalai Chemicals operates in an industry which is cyclical and to that extent entry and exit point in the stock is extremely critical.

The company has started doing well from the past 2 quarters and for the quarter ended June 12, has posted extremely encouraging numbers with Sales Revenues more than doubling to roughly Rs.300 crores and PAT growing over ten fold from Rs.1.55 crore to Rs.16.8 crores.

We believe the management is investor friendly which is evident from dividend track record of the company pre - FY08 and the company we believe will be back to dividend list from the current year. We believe Thirumalai Chemicals will stage a strong rebound and will regain its lost glory.

For full report, Click on the attachment