1. Majority of the revenue is still coming from PAP which is more or less a commodity. What do you think would be the sustainable EBITDA margin for Valiant Organics?
2. Don't you think Valiant is a cyclical company and we should value it on Market Cap/ Sales?
Buy around P/S = 0.5-1 and sell it around P/S = 3-4
They will do around 250 to 300 Cr revenue from PAP at the peak they will do Rs 1000 Cr rev which means it is around 25-30% of the business so they should be able to do 16-17% EBITDA and yes everything is cyclical. on EBITDA margins listen to what management has said -
Mihir Shah --
So, yes, historically, our margins used to remain high. We were at a smaller product profile. We were looking at expansion. We were also looking at new product additions. So, FY21, FY22, we've added newer products. So, we've achieved volume growth. But in terms of margin, some of them were margin dilutive, but at an absolute level, it was an increase in the EBITDA. So that is the reason for the reduction in the margin level. And coupled with that, you have to take into consideration the geopolitical issues that came in last two years. So, while we were expanding and bringing newer products and newer expansions, the market also went in a turmoil. So, all of that together has brought that 27% down to less than 15% EBITDA margin YoY. So that is the movement. As far as some guidance is concerned, on a stable state we look at being somewhere around 20% EBITDA margin. But I wouldn't say that we'll achieve that immediately. Given the prices at which the market is right now. FY25 could be lower than 20%, but our aim and goal will be that we stay in the upward of 20%.
Hey, I have a relatively significant holding in this company and want to understand your expectations wrt the turnaround story. Have checked the PAP prices and they're down and expected to go down further yet. However, Q3 saw better performance and post March we have seen a rise of about Rs.100. P/S stands at about 1.4 on trailing basis and if the Q4 results are better we might see further upside. What are your view on this ?
Also if you can share on forward basis what multiple is it trading at currently? It would be really helpful.
Whichever businesses they are in, which one in your opinion, stands to be the key revenue driver going forward for a couple of years?
Hi Darshit, Its very hard for me to comment on this given the trade war scenario we are in today. Biggest manufactures are in China of all the chemicals India do and if USA doesn't want to import from them then it opens the gates for Indian companies but then Chinese can dump their Chemicals on rest of the world including india .. its very very hard to know what will be the result of this trade war currently going on. I have no clue and i would not want to give you any logical hope here.
If trade war was not there then i would have said its trading at fair value today for sure. PE multiple would be around 10 to 20 2 year forward earning.
Hi , Its very hard for me to comment on this given the trade war scenario we are in today. Biggest manufactures are in China of all the chemicals India do and if USA doesn't want to import from them then it opens the gates for Indian companies but then Chinese can dump their Chemicals on rest of the world including india .. its very very hard to know what will be the result of this trade war currently going on. I have no clue and i would not want to give you any logical hope here.
If trade war was not there then i would have said its trading at fair value today for sure. PE multiple would be around 10 to 20 2 year forward earning.
Hello Dhruva sir , tomorrow valiant will publish results, when ever you get time if possible please share your views on results bcos it helps a lot in understanding micro details, also if you can guide how to monitor key monitorables especially RM & finished goods price , presently i am able to monitor phenol prices from sunsirs website but i dont know other major monitorables which are they
I'll look into the results but i don't see anything changing as of now.
I think its wise to stay away from things which require lots of monitoring and guessing as there are many other predictable businesses in the market and you buy them when others are panic selling them instead of panic selling something which is not a predictable business.
Means You are not doing fresh buying & holding bought earlier or sold at loss feeling it can fall further, if you can clarify, also sir isnt it is difficult for crude oil to fall 20% ?
Hello sir, sir what is your view on current Quarterly results & current business momentum also they have decided for rights issue , has anything got worsened wrt business? today it fallen very badly
Thank you sir for your replies, sir need some help , how i can keep track of raw material prices(other than crude oil)(any links/website/code) & finished product price trends
2) how can i keep track the demand outlook of valiant's products(main/key items)
Hi, very nice analysis and conclusion !! since I haven't tracked this company at all, I have some questions from my side.
1. company is not conducting concalls continuously, any special reason? how has been the management's disclosure behaviour historically? hiding when things go wrong and comes in rosy times?
2. Sure it is a pure cyclical bet, with hope of coming out of woods soon. How do you normally enter in this kind of business? just enter and wait for better times, or enter only when you see turnaround , like margin expansion? I unable to judge if the improvement will continue or a one time event, taking Q1FY25 margin improvement as ex.
3. Any other Indian peer companies to understand the trend more?
1. They aren't hiding at all - Even in good times they didn't do continuous conf calls. (Its a Arti Group company btw)
2. I see two things - generally this kind of supply side business cycle last for 2-3 years and when i start to see slight hint of improvement that means something is changing (generally its not one off as competitors don't sleep for a Quarter and then again flood the markets) and second thing is valuation (if its cheap enough then you are getting the timing bit wrong is also okay for ex - if the reward is 2-3x and risk is very low)
3. Not very sure but they are dominant player in India for what they do, mostly they are producing import substitutions.
Great write up! I have couple of questions-
1. Majority of the revenue is still coming from PAP which is more or less a commodity. What do you think would be the sustainable EBITDA margin for Valiant Organics?
2. Don't you think Valiant is a cyclical company and we should value it on Market Cap/ Sales?
Buy around P/S = 0.5-1 and sell it around P/S = 3-4
They will do around 250 to 300 Cr revenue from PAP at the peak they will do Rs 1000 Cr rev which means it is around 25-30% of the business so they should be able to do 16-17% EBITDA and yes everything is cyclical. on EBITDA margins listen to what management has said -
Mihir Shah --
So, yes, historically, our margins used to remain high. We were at a smaller product profile. We were looking at expansion. We were also looking at new product additions. So, FY21, FY22, we've added newer products. So, we've achieved volume growth. But in terms of margin, some of them were margin dilutive, but at an absolute level, it was an increase in the EBITDA. So that is the reason for the reduction in the margin level. And coupled with that, you have to take into consideration the geopolitical issues that came in last two years. So, while we were expanding and bringing newer products and newer expansions, the market also went in a turmoil. So, all of that together has brought that 27% down to less than 15% EBITDA margin YoY. So that is the movement. As far as some guidance is concerned, on a stable state we look at being somewhere around 20% EBITDA margin. But I wouldn't say that we'll achieve that immediately. Given the prices at which the market is right now. FY25 could be lower than 20%, but our aim and goal will be that we stay in the upward of 20%.
Hey, I have a relatively significant holding in this company and want to understand your expectations wrt the turnaround story. Have checked the PAP prices and they're down and expected to go down further yet. However, Q3 saw better performance and post March we have seen a rise of about Rs.100. P/S stands at about 1.4 on trailing basis and if the Q4 results are better we might see further upside. What are your view on this ?
Also if you can share on forward basis what multiple is it trading at currently? It would be really helpful.
Whichever businesses they are in, which one in your opinion, stands to be the key revenue driver going forward for a couple of years?
Hi Darshit, Its very hard for me to comment on this given the trade war scenario we are in today. Biggest manufactures are in China of all the chemicals India do and if USA doesn't want to import from them then it opens the gates for Indian companies but then Chinese can dump their Chemicals on rest of the world including india .. its very very hard to know what will be the result of this trade war currently going on. I have no clue and i would not want to give you any logical hope here.
If trade war was not there then i would have said its trading at fair value today for sure. PE multiple would be around 10 to 20 2 year forward earning.
Hello sir, what are your current thoughts on company & macro environment
Thanks
Divyansu K Taneja
Hi , Its very hard for me to comment on this given the trade war scenario we are in today. Biggest manufactures are in China of all the chemicals India do and if USA doesn't want to import from them then it opens the gates for Indian companies but then Chinese can dump their Chemicals on rest of the world including india .. its very very hard to know what will be the result of this trade war currently going on. I have no clue and i would not want to give you any logical hope here.
If trade war was not there then i would have said its trading at fair value today for sure. PE multiple would be around 10 to 20 2 year forward earning.
Hello Dhruva sir , tomorrow valiant will publish results, when ever you get time if possible please share your views on results bcos it helps a lot in understanding micro details, also if you can guide how to monitor key monitorables especially RM & finished goods price , presently i am able to monitor phenol prices from sunsirs website but i dont know other major monitorables which are they
Thanks
Divyansu K Taneja
I'll look into the results but i don't see anything changing as of now.
I think its wise to stay away from things which require lots of monitoring and guessing as there are many other predictable businesses in the market and you buy them when others are panic selling them instead of panic selling something which is not a predictable business.
Are you still tracking the company?
Management hasn't provided any investor presentation for this quarter and again posted a loss in the quarter.
Company is also planning to raise money via the rights issue.
yes i am tracking but as long as Oil prices are high , dollar appreciating vs INR and deflation in China they will continue to face cost pressure.
I am not buying it as long as macro gets comfortable and phenol prices stabilize.
Means You are not doing fresh buying & holding bought earlier or sold at loss feeling it can fall further, if you can clarify, also sir isnt it is difficult for crude oil to fall 20% ?
yes i had a small position and then i sold it after writing this blog at minor loss as it made me realize recovery is still far away.
and i concluded my blog with same- Its hard to guess but today i feel its neither trading very cheap or very expensive.
I think it has to be very cheap to buy it, risk reward in commodity business should be at our side when we buy it.
Hello sir, sir what is your view on current Quarterly results & current business momentum also they have decided for rights issue , has anything got worsened wrt business? today it fallen very badly
I don't see anything changing as of now, for them to come back -
1) Oil prices has to go down by 20-30% in INR terms.
2) Chinese deflation has to end.
3) INR has to stabilize here Vs Dollar.
Thank you sir for your replies, sir need some help , how i can keep track of raw material prices(other than crude oil)(any links/website/code) & finished product price trends
2) how can i keep track the demand outlook of valiant's products(main/key items)
Hi, very nice analysis and conclusion !! since I haven't tracked this company at all, I have some questions from my side.
1. company is not conducting concalls continuously, any special reason? how has been the management's disclosure behaviour historically? hiding when things go wrong and comes in rosy times?
2. Sure it is a pure cyclical bet, with hope of coming out of woods soon. How do you normally enter in this kind of business? just enter and wait for better times, or enter only when you see turnaround , like margin expansion? I unable to judge if the improvement will continue or a one time event, taking Q1FY25 margin improvement as ex.
3. Any other Indian peer companies to understand the trend more?
1. They aren't hiding at all - Even in good times they didn't do continuous conf calls. (Its a Arti Group company btw)
2. I see two things - generally this kind of supply side business cycle last for 2-3 years and when i start to see slight hint of improvement that means something is changing (generally its not one off as competitors don't sleep for a Quarter and then again flood the markets) and second thing is valuation (if its cheap enough then you are getting the timing bit wrong is also okay for ex - if the reward is 2-3x and risk is very low)
3. Not very sure but they are dominant player in India for what they do, mostly they are producing import substitutions.