Camlin Fine Chemicals (CFC) Limited

Jan 30,2010: CFC: Review Dec 2009 Quaterly Results
Dec 24,2009: CFC: Long Term Value.
Company Website: CamlinFineChem.com

Camlin Fine Chemicals: Review Dec 2009 Quaterly Results

Camlin fine Chemicals has published the Unaudited Dec 2009 Quaterly results. Following are some of the salient points.
Dec 2009 (Dec 2008) in Lacs
Gross Sales :                3436.67 (2291.36)   - UP   49.98%
Profit from Operations:   237.68   (187.29)   - UP   26.90%
Profit Before Tax:           141.31     (57.66)   - UP 145.00%
Tax :                                96.42     (18.44)   - UP 422.90%
Net Profit:                        44.89     (39.22)   - UP   14.45%
===========================
As can be seen topline growth is approximately 50% bottomline growth is 14.5% and taxes have increased by 423%. The sharp increase in taxes has skewed the bottomline. Profit before taxes was 145% which is much better than the topline growth of 50%.

Let us also look at margins with respect to sales.

1. Profit from operations as a percentage of sales has reduced from 8.39% (Dec2008) to 7.13% (Dec 2009) which is because of increase in expenses from 91.61% (Dec 2008) to 92.87% (Dec 2009).

- If we look at 9 months figures we can see that the expenses are down from 89.55% (Nine months ended Dec 2008) to 89.42% (Nine Months Ended Dec 2009).

- We can hereby conclude that the expenditure/Costs have been increasing at a higher level and have accelerated in the last Dec 2009 quarter. The overall costs are still below the Annual March 2009 numbers (89.76%)

2. Other Income has increased substancially from 0.87% (Dec 2008) to 1.35% (Dec 2009) since it is a small component of total sales the Profit before Interest & Exceptional Item has improved (8.48%) but still below Dec 2008 (8.98%) levels

3. Interest payments have dropped by 240bps from 6.67% (Dec 2008) to 4.24% (Dec 2009). The govt Low interest rate regime has definitely helped the company in increasing profits which can be seen in a 220 bps increase in Profit After Interest but before exceptional items.

- One must remember Dec 2008 was the peak of the financial/credit collapse so 6.67% of sales can be considered as a high water mark for interest payment ratio.

4.  Sharp increase in taxes paid from 0.83% (Dec 2008) to 2.89% (Dec 2009). This increase in taxes has reduced the profit after tax numbers. Which should have been much higher ideally.

Conclusion: Camlin Fine Chemicals has a topline growth of close to 20% (Nine months) and can be expected to reports 120Cr of topine for year ended March 2010. Looking at the increase in expenditure cost of 120bps, costs have to be contained in the future. End of low interest regime with the hike in CRR signals that cost management and cash flow management is going to be critical for a sustained growth in topline and bottomline.

- Companies plan to have a rights issue soon would help reduce the risks of interest rate hike.

- The high level of tax payment considering that fact that the company was expecting Export Oriented Unit (EOU) status for its plant could signal that the profit growth is being tempered down to reflect a more consistent sequential number. This might also help in pricing the rights issue for the company by reporting higher sequential profits.

- Investment can be considered at this level (CMP: 92.60 Market Cap: 53.81Cr) for a long term basis(2+ years). The company has strong promoter group interest, low instittutional holding, listing only in BSE and fair valuations for a market leader. Ideally the stock would be valued at a market cap close to 1 times sales.  

- Link to Dec 2009 Qtr report

Dark Horse: Regency Ceramics

These are "Penny Stocks" with potential of upside and downside. Unlike true penny stocks Regency Ceramics is an established company of 25 year history which is reporting losses and hence available at a discount. Here is the story:

Regency Ceramics:  Listed in BSE and NSE.
CMP: 10.05 
Market Cap: 13.32Cr
Sales TTM(12 Trailing Months): 159.99Cr
Debt March 2009: 137.31Cr
Operating Profit TTM: 0.15Cr
Gross Profit TTM: 5.12Cr
Interest TTM:13.22Cr

Promoters have recently (Dec 2009) converted 15.89Cr of unsecured loans by the promoter to Regency Ceramics into Equity resulting in additional equity of 1.28Cr shares of 10Rs each.
With the increase in paid up capital to 26.44Cr from 13.59Cr.  Promoter shareholding has increased to 72.22% (19.09Cr of Equity)
The price at which new equity is issued to promoters is 12.37 per share.
Promoters have converted 15.89Cr of interest bearing loans to equity at 12.37 per share (as per the Scheme of Arrangement)
Right right now you can buy the stock from the market at approximately 25% discount to the promoter buy price.

The other points worth consideration regarding March 2009 numbers.

- Secured Debt of 115Cr
- Unsecured Debt: 21.7Cr (15.89Cr to be converted into Equity)
- Net Current Assets: 50Cr (Market Cap is just 26.44Cr considering conversion of debt to equity of 15.89Cr)
- Inventories 32Cr
- Cash and Bank balances: 12.48Cr

- Company in the good old days March 2006, March 2005 reported other income of 4.5Cr & 4.89Cr respectively which included 1.4Cr amd 1.55Cr of lease rental income. Regency Ceramics had operating profits of 18Cr
- Regency Ceramics is one of the largest Ceramic tile manufacturer in India. It has a gas based ceramic tile manufacturing plant with capacity of  250,000MT per annum
- Regency ceramics also merged an entity called Regma Ceramics which produces valued added large dimension tiles and with a capacity of 100,000 MT per annum which would increase its tile manufacturing capacity to 350,000MT per annum.
- Year 2004 and 2005 Regency Ceramics was a divident paying company with divident payout of 15% Rs 1.5 per share with share price ranging around  Rs 30 - 35/=.
- The company was also the largest Ceramic Tile manufacturer in India with a Gas Based Plant with supplies from KG Basin by Gail. With the large amount of gas being discovered in KG basin production of ceramic tiles at 100% capacity should not be a problem. Current Capacity utilization would be around 60% so we can expect a topline growth of 70% with capacity utilization of close to 100%
- Regency Ceramics is reporting losses in March 2008 but receives special award in recognition of outstanding export performance for the year 2007-2008 from the Ministry of Commerce (CAPEXIL) Govt of India.


I personally think this (10/=) is a great price to get into the stock and 1-2 years down the line Regency will be a 15% divident paying company with stock price around atleast 30-40 Rs per share. Might as well hold on to the stock as the promoters do give out generous dividents.

Company Website Link