Management changes and operational improvements can make Thirumalai Chemicals a turnaround candidate. The company, which had suffered long under sharp commodity cycles, is taking efforts to become more cost-efficient and move up the value chain. The results are already visible. Long-term investors can buy into the scrip.
BUSINESS Thirumalai Chemicals is a Mumbaibased manufacturer of petrochemical phthalic anhydride that is used in paints and plastics. The company also has a 40,000-TPA maleic anhydride plant in Malaysia. Being dependent on commodity chemicals, the company's profitability in the past suffered from sharp commodity cycles.
GROWTH DRIVERS The company has taken a number of transformational steps in the past one year that have started paying off. After running since inception under family management, the company in the past year hired a professional as CEO, which helped it review the business thoroughly and take steps for improvement.
Over the past one year, the company has worked on reducing costs and energy consumption, improving operating cycles, better fund management and higher capacity utilisation resulting in improved competitiveness and profitability. The company is focusing on growing its specialty chemicals business, catering to food processing and cosmetics industries, which today represents around 15% of total revenues and enjoy better margins.
Its Malaysian subsidiary has turned around in the current financial year and is now profitable.
The company also benefited by the 10% safeguard duty imposed on import of phthalic anhydride in Jan ’12, subject to review after one year.
FINANCIALS In the past five years, Thirumalai’s net sales grew at a cumulative annualised growth rate (CAGR) of 14.2% to Rs 1,051 crore in FY12. The profits kept fluctuating and dropped to just Rs 0.9 crore for FY12 on a consolidated basis. For the Jun ’12 quarter, the company, however, displayed the results of its turnaround process and posted Rs 16.8 crore in net profit on a turnover of Rs 297.5 crore. Although fluctuating from quarter to quarter, FY13 profits will be much better than FY12.
VALUATIONS The company is currently trading at a price-to-earnings multiple (P/E) of 4.4 based on earnings for trailing 12 months and over 20% discount to its book value.
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