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Saturday, April 21, 2012

Jayant Agro: Castor oil to rescue Auto Companies..

Here is an interesting article by ICIS Green Chemical Blog

For the benefit of readers I have copied it but here is the link to the original article

The global automotive industry is abuzz with the tightened supply of polyamide 12 (also called nylon 12) which are used in cable ties, wire insulation, flexible hosing, nozzles, damping cogwheels, flexible cover caps, sheet gaskets, sealing rings, and in other fuel line applications/auto-related parts.
PA-12 is also used in plastic parts to make solar panels and cable coverings used in offshore oil and gas production.

Based on several googled websites, PA-12 reportedly have excellent properties such as high degree of dimensional stability under humidity or freezing environment; high resistance to chemicals such as hydraulic fluids, oil, fuels, grease, salt water, solvents; strong resistance to cracking under stress; high-resistance to abrasion; and has high fatigue resistance.
PA-12 also dampens noise and vibration, according to various sources. Unfortunately, I am not familiar with cars but from what I've seen on several news about this PA-12, this is an important chemical for the automobile industry as car makers and several players along the automotive supply chain held an emergency meeting yesterday in Detroit, Michigan, to discuss the critical issue on PA-12 shortage.
According to this article from Plastics News, there are very few suppliers worldwide of  PA-12, namely Evonik, Arkema, Ube Industries and EMS-Grivory. Global PA-12 production was estimated at around 100m lbs/year. Evonik is the only producer here vertically integrated in a key PA-12 feedstock called cyclododecatriene (CDT), which is manufactured by cyclotrimerization of butadiene.
CDT is used to make laurolactam, which in turn is used as a monomer in PA-12.
Unfortunately, a fire broke out at the end of March at Evonik's CDT facility in Marl, Germany, (two employees were killed) and CDT production (capacity is not disclosed) is expected to remain out-of-order for at least three months. This in turn, will affect PA-12 production for those who are dependent on CDT material.
Now here comes the castor part (sorry it took a while to get to this point...).
According to Evonik, the company is able to provide alternative substitutes to its CDT-based PA-12 products in the form of its VESTAMID Terra DD, which contains 45% renewable-based materials made from castor oil derivatives (mostly sebacic acid). The product is based on the polycondensation product of 1,10-decamethylene diamine and 1,12-dodecanedioic acid (this is where sebacic acid comes from).
VESTAMID Terra also comes as polyamide 6,10 which has a 63% biocontent -- the polycondensation of 1,6 hexamamethylene diamine and 1,10 decanedoic diacid (another sebacic acid material); and polyamide 10,10 - a 100% bio-based polymer from the polycondensation of 1,10 decamethylene diamine and 1,10 decanedoic diacid.
Evonik said it is possible to modify the biobased polymers to achieve much of the same material attributes as PA-12. In fact, the company announced yesterday that it has begun measures to increase production capacities of its VESTAMID Terra polymers at its Shanghai, China, plant.
An additional compounding facility for VESTAMID Terra will become operational in the third quarter of this year, and new capacity for the polymerization of the bio-based nylon are in the works and is scheduled to operate in the second half of 2013.
As the blog noted in previous posts about castor-based polyamides, Arkema has also been expanding its castor-based polyamides (under the RILSAN brand) -- when it acquired Hipro Polymers and Casda Biomaterials last year.
Other castor-based polyamides producers include Rhodia (Technyl eXten: PA-6,10) , BASF (Ultramid Balance: PA-6,10),  DSM (EcoPaXX: PA-4,10) and DuPont (Zytel PA-10 and PA-6,10). One thing to note is that Elevance is also targeting to produce natural oil-based derivatives such as diacids for PA-11 and PA-12 and is currently collaborating with companies like Arkema and DSM.
An interesting information about this PA-12 shortage is that other types of polyamides such as PA-6,12 and PA-6,10 could be an alternative to PA-12, according to producers who were interviewed* by ICIS colleagues at the recent plastic tradeshow NPE.
According to US plastic compounder A Schulman, PA-6,12 is a superior alternative to PA-12 for automotive applications given the same chemical resistance factors but PA-6,12 is said to have higher melting point. According to A Schulman, PA-12 supply has been increasingly tight even before the Evonik fire incident as demand from the oil and gas production has taken consumption share from the automotive supply chain.
More plastics are also being used in the automotive manufacture and therefore nylon-based materials are increasingly being used.
DuPont said* it is also working with auto makers to find alternatives for PA-12 in certain applications.
Rhodia, which produces PA-6,10 is reportedly* also working with customers to seek replacement for PA-12, while BASF -- a small CDT supplier as well, is offering its support to PA-12 producers.
Meanwhile, Evonik has also been in the middle of a planned PA-12 expansion, which was announced in December last year. Evonik said a 5,000 tonnes/year PA-12 expansion will supposedly start this year, and another 20,000 tonnes/year PA-12 expansion in its Asian facility is scheduled to be completed within 3 years.

Conclusion: Jayant Agro is the cheapest big Castor oil companies in the heart of castor growing region in the World.
Jayant Sales are approximately Rs 2000Cr ie USD  400 million dollar
Jayant Market Cap is: Rs 155Cr ie USD 31million dollars
Jayant is the largest processor of Castor Seeds are per Solvent Extractors Association (SEA) since 2005 till date (Link)
Banaskantha district in gujarat produces the largest amount of castor seeds ..and jayant has seed crushing plant in banaskantha.. how big is banaskantha? well here is a comparision.. According to castor oil Report (Must download link
China production of castor oil:81,400Tonnes
Banaskantha District castor Seed production: 178,240Tonnes (2009-10) Banaskantha oil production is 53,472 - 71,296 tonnes.. standalone Banaskantha district would be 3rd largest producer in the world!! (Seed to oil conversion is 30-40%)
Promoters own 65% equity in Jayant and ITOH Oil 4% .. so still one can buy 30% stake in the largest castor oil player in India for just 9 million Dollars!! 
Jayant promoters have patented production process for efficient production of sebacic acid ... patent is valid till 2020.(Link)
Jayant has been consistently paying dividends each year for the past 18 yrs..(3.5cents per share 2011)
CMP of jayant stock is Rs 103.6 ie USD 2.07 per share. (Calculation is based on conversion rate of Rs 50=1USD)
So here its is Folks if you are not invested in Jayant Agro you are really missing out on one of the best Green chemical stock in the world. With new Indian govt regulations which allow foreign individual investors to directly invest in equity of Indian companies.. Investment opportunity in Jayant agro stock is available to one and All!! .... 9 milion USD will buy you a 30% stake in Jayant Agro Oragnics . Ideal price for Jayant is one times sales ie upside is 10 times current stock price.


Anonymous said...

Disclaimer: I have ~5000 of JAOL (avg price Rs 91).

I've been thinking long and hard about another multinational buying into JAOL (a la Riddhi Siddhi). Somehow, gut feel doesn't agree:

1. Udeshis has large number of its family members into the management.
2. The family is deep into Castor business for decades. Why would they sell off family silver?
3. JAOL has demonstrated that it can handle foreign collaborations (Mitsui & ITOH).
4. Their carefully calibrated arrangement with Japanese shows they are not into selling business business (note repeat).
5. Theirs is Sunrise industry. It can only deliver all round positives.

I have some cash locked into other scripts. Unfortunately they are not doing well. Don't want to incur loss and move into JAOL. Otherwise, I think 10K shares in JAOL is decent asset to have.

What'sUp Prahalad said...

Anonymous ji:

I am also of the opinion that the promoters will not sell their stake in Jayant agro.. though there might be some equity dilution..


- As part of Vibrant gujarat Jayant promoters were planning to setup a 2500Cr castor complex..
- problem of manpower retention..
- Green Chemicals is big business and will need funds to go to the next level..and play with the big boys

All these means the stock should be reasonably priced for dilution and stock option grant.. for employee retention..

I do expect Jayant to reach fair valuation.. which would be around 1 times sales (at the minimum..)

yes 10,000 shares will be worth 1Cr at that valuation..

Looking at the market demand for castor looks like Q4 is going to be a bumper result.. so getin before the results are out .. That would be my suggestion..

If you have a loosing stock its advisable to switch to jayant.. It would be foolish to hold on to a loosing stock.. (I hope you are not pointing to GAEL #:-p)

=happy investing

Anonymous said...

"If you have a loosing stock its advisable to switch to jayant.. It would be foolish to hold on to a loosing stock.. (I hope you are not pointing to GAEL #:-p)"

No, not GAEL. IDFC, Noida Toll & Heidelberg Cements.

What'sUp Prahalad said...

Anonymous ji:

What is the cost price and quantity.. and how long have you been holding on..

=happy investing

Anonymous said...

WhatsUP Ji:

All holdings around 2 years:

1000 IDFC - Rs 178 (I basically invested in Deepak Parekh, not the company).

2500 Noida Toll - Rs 33 (It is steady milk giving cow, but no growth story, except some bounty of land bank development rights may accrue).

2000 Heidelberg Cements - Rs 44

10,000 GAEL - Rs 31.

I want to exit some & reinvest in JAOL, but I am not able to digest the loss at current prices.

What'sUp Prahalad said...

Anonymous ji:

none of them are cheap and they all have very large equity base..

If given a choice to chose 1 to sell .. I would sell noida toll.

If given a choice of 2 to sell I would sell noida and IDFC

If given a choice of 3 to sell .. i would sell all 3 ;-)

=happy investing