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Friday, November 01, 2013

Jayant Agro: Plant based Polyurethane opens up the future of Japanese Auto Manufacturing

Jayant Agro recently signed a JV Agreement with Mitsui chemicals to produce Plant (Castor oil) based Polyols.. Vithal Castor Polyols (Jayant: 50%, Mitsui Chemicals:40%, ITOH oil - 10%) in India. 
with this JV Mitsui chemical stated plant based polyols will be price competitive with crude oil based polyols

here is an interesting article which talks about Plant based Polyols and  their future

First in the Industry: Plant-Based Polyurethane opens up the Future of Japanese Auto Manufacturing


“Chemical engineering” is not well known by the public.
However, it is one of the most important and competitive industries Japan can be proud of.
It gives birth to materials used for various products.The Japanese auto industry is ranked at the top of the world.Many automobile parts to build vehicles are made from such materials brought forth by chemical engineering.  


As in many other industries, this industry is required to be designed more environmentally conscious in the future.The plant based polyurethane developed by Mitsui Chemicals Inc. with the collaboration with Toyota Motor Corporation and Toyota Boushoku Corporation is gathering the attention of the world.

 Among the manufacturing industries, chemical engineering might be an unfamiliar area for liberal arts students. When considering chemical engineering as a whole, its products can widely range from the production material itself to the processed goods. There are many more examples that the industry is not at the forefront of attention but in fact, the chemical power is in such a place.

According to the Japan Standard Industry Classification (JSIC), “chemical engineering” is categorized as “the establishments whose production process is mainly the chemical treatment and the compounded material obtained by those chemical processes or the final processing establishments that are not classified in other categories.”  Among all the industries, cost of all the shipments and added value of chemical engineering are the third largest next to transportation equipment and general machinery. (Industrial Statistics Survey, 2007) It could be said that the chemical engineering is one of the key and core industry in Japan.

Besides Mitsui Chemicals, as for your information, enterprises such as Mitsubishi Chemical Holdings, Sumitomo Chemicals, Asahi Kasei, Showa Denko, Shin-Etsu Chemical, and Tosoh earn the top sales in Japan.

In worldwide, the shipping volume of Japanese chemical engineering is the fourth place following the U.S., China and Germany (2007). According to the manufacturers, Mitsubishi Chemical Holdings, Mitsui Chemicals and Sumitomo Chemical are among the top 20.



Each company has its own area of specialty. Mitsui Chemicals, focus of this article, has three operational headquarters: 
Functional Materials OHQ that produces and sells mainly automotive and industrial materials, coating and functional materials, life and energy materials, and electron and IT materials; 

Advanced Chemical Materials OHQ that produces and sells fine chemicals and agrochemicals, and

Basic Chemicals OHQ that produces and sells petrochemical feedstock, phenol and synthetic fiber feedstock.  They produce many and variety of products.



These materials and products leveraged chemicals have advanced significantly over time. Let’s take the automobile parts as a simple example. It is said that if you disassemble a car made by some manufactures, more than 70% of its parts are supplied by Mitsui Chemicals.  It is rare the power of chemicals gets the spotlight but it is crucial, and expected to play even larger role in the future from the viewpoint of meeting the demand for weight savings and environment consciousness.

Environment related issues are now unavoidable, and global action is required to deal with the reductions of green house effect and carbon dioxide emissions. To address those issues, Mitsui Chemicals, as a material manufacturer, tackled the challenges with extremely high level difficulty – the development of the environmental-responsive products for the car interior materials which satisfy the Japanese auto manufacturers whose demand the highest level of performance in the world – using polyurethanes based upon the concept of the carbon neutral by the utilization of the non-edible plant based material.

As a result of joint development among Mitsui Chemicals, Toyota Boushoku and Toyota Motors, the first car seat cushions made from the plant-based polyurethane were commercialized in 2009.  These seat cushions are adopted in the environment-responsive concept cars, new Toyota Prius and Lexus HS250h. The molecularly designed bio-polyol was developed based on the castor-oil origin ricinus that will not compete against food resources in order to express the functions demanded for the car seat cushions.  Fifteen per cent of the polyurethane materials are made by this bio-polyol instead of traditional 100% petroleum-based. This technology is surpassing greatly the content rate of the plant based material and in performance beyond other plant-based polyurethane for car seat cushions being developed by other companies both in Japan and overseas.

The extension of the utilization of this environment-responsive product is setting out, too. At present, it is used only for the surfaces of the seat but the possibilities of utilization of this material for the other interior parts, and the increased content rate without impairing quality while reducing the environmental burden, has been reviewed actively.

On the other hand, it is noted that the functions demanded for the materials for today’s automobile are: “environment-responsive” and “comfort.”   The correspondence to the “environment-responsive” includes the reduction of the carbon dioxide emissions by the usage of plant-based material, and “weight savings” by the decreased consumption of energy while running.  To address the “comfort” aspect, the expanded inside spaces by thinning are a prime example. In the future, it is expected that it can be used for the parts that did not use polyurethane while shifting toward the hybrid and electric vehicles.  Mitsui Chemicals will keep researching and developing such polyurethanes based on those key words, commercializing and introducing to the market with customers, and aiming to establish the status of a dominating presence in the world.

The polyurethane business of Mitsui Chemicals is not for the domestic market only. It is rather rare for a material manufacturer in the area of automobile interior to break into the foreign markets independently. Parts manufacturers and material manufacturers usually build the factories overseas when Japanese auto manufacturers such as Toyota, Nissan and Honda establish staging points there. By doing so, it becomes possible to ensure the same quality as made in Japan.  Mitsui Chemicals built several staging points in primary areas in Asia where they supply polyurethane materials to the customers’ factories on the spot.  Furthermore, it has built and strengthened the technical support networks.

Because of the global trend of moving out from the fossil energy dependence and focus on the environment-responsiveness, Japanese auto industry is facing a critical and important turning point.

In such circumstance, can Mitsui Chemicals explore with the plant-based car seat cushions development and can act as a detonator for the Japanese auto industry?

The fate of a chemical engineering manufacturer depends on whether it can succeed in business development responsive to the markets which require high quality and low costs as the environmental related demands increase.

Because now is the time a big paradigm shift is required, it might be the time for Mitsui Chemicals and Japanese chemical technologies to demonstrate the strength.

Fueled by a solar battery, an engine powered by a motor with parts and interior that are plant-based, more than 90% of the parts are recyclable… such automobile could be developed in near future.

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Jayant Agro Organics:
Current Market Price: 77.80
Market Cap: 118Cr (1,180 Million INR(Indian Rupees))

7 yrs 600% increase in Net Profit and 400% increase in sales
=================
Consolidated Sales/NP numbers.Indian Rupees (INR)
March 2007 Sales 462.49Cr  Net Profit: 6.76Cr  
March 2008 Sales 605.96Cr  Net Profit: 9.51Cr
March 2009 Sales 875.86Cr Net Profit 7.49Cr 
March 2010 Sales 904.01Cr Net Profit: 12.47Cr
March 2011 Sales 1,175.26Cr Net Profit: 24.92Cr
March 2012 Sales 1,832.26Cr Net Profit: 31.35Cr 
March 2013 Sales 1,624Cr Net Profit: 36.24Cr
=================
Current Market cap of Jayant agro is less than 1/12 its Annual sales which means you can buy 100% stake in Jayant Agro and its subsidiaries for a price equal to one month sales of Jayant Agro

Jayant Agro is a Govt recognized Star Trading House, other Star Trading House (companies with similar export numbers..) L&T, M&M, Sesa Goa, Ipca Labs, Balkrishna Industries, Bayer Cropscience, Hindustan Levers, HCC, Ruchi Soya .. all these listed companies are quoting at a Market Cap atleast 10 times Jayant agro's Market Cap..

Jayant Agro is also a Govt of India recognized , Dept of Science and Technology:- Research Oriented company. Jayant Promoters Udeshi's also hold US patent for efficient production of Sebacic acid and its salts US Patent no: 6392074

Promoter stake in Jayant is at  64.79% in 2012 promoters spent 10Cr (100 Million INR) to buy a 4.99% stake from the open market (Buy price: 130 per share)

Consistent dividend paying company since inception and with increasing dividends 
2009: 1.25 
2010: 1.50 
2011: 1.75 
2012: 2.00 
2013: 2.25 

Only 5198 shareholders (Sept 2013) closely held company available at a price which is below its 5 yrs EMA(Exponential moving average) high probability of special dividend (due to stake sale to Arkema) and bonus (Authorized capital increased to 42Cr when issued capital is just 7.5Cr Link)

Conclusion:
Jayant due to market conditions and poor results for Sept 2013 is available at a deep discount to its intrinsic share value.. Due to the fact that castor oil and its derivatives are established Green chemicals and its a sunrise industry the long term future is very bright for Jayant Agro. 

Current Price(78.5) is very good price to buy as Jayant is available below its 5yrs EMA .. 

PN: This information is based on publicly available data.. please do your own deep dive before investing.

5 comments:

atulastra said...

If the picture is as rosy as it is being sold than I have following some questions:

1. Why Stock price have fallen 50% in last 12 months?

2. If demand is more than supply, why company is consistently increasing the debtors/inventory?

3.Debt of the company has grown many folds over the years, is it safe to invest in high debt company?

4. Nothing is mentioned about the quality of the management.

Happy Investing
Atul

What'sUp Prahalad said...

Atul ji:

these are all valid questions.. and I had raised them in their AGM 2010

regarding rising debt the management said..

"its nothing to be worried.. as this is short term in nature and part of how business is done.."

another question asked was .. if double counting is done of sales which was also denied by the management..

even though the stock price has fallen from 140 levels Jan 2013 to current levels 77 oct 2013 you should check the no of shareholders..
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dec 2012: Individual shareholders holding nominal share capital: 5004 shareholders with 19.72%

total shareholders: 5334
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Sept 2013: Individual shareholders holding nominal share capital: 4886 shareholders with 19.20%

total shareholders: 5198
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as you can see with the fall in price total no of shareholders has reduced and public holding has also reduced.. which is nothing but accumulation happening in disguise..
----------------

Personally I feel the company is delaying the report of export incentives..

Also a company with 1600Cr of export has no forex gains/losses being reported..
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so its not all black and white.. but in 2009 public shareholding was 45% now 2013 its 35% promoters are buying from the open market and in 2012 they bought at 130 per share levels 4.9% from the open market..

=happy investing
whatsup-indianstockideas.blogspot.com

What'sUp Prahalad said...

Atulji:

the AGM I attended... notes were published in the blog .. here is the link:

http://whatsup-indianstockideas.blogspot.in/2011/09/jayant-agro-organics-sept-292011-agm.html

=happy investing
whatsup-indianstockideas.blogspot.com

What'sUp Prahalad said...

Jayant agro annual reports from year 2000 (all that I could find..)

http://whatsup-indianstockideas.blogspot.in/2010/05/jayant-agro-organics.html

=happy investing
whatsup-indianstockideas.blogspot.com

What'sUp Prahalad said...

Atulastra ji:

with regards to debt..
as per annual report march 2013
total debt: 285.16cr
long term debt:48.40cr
short term debt:236.76cr
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most of the debt is short term.. and secured short term debt.

short term debt is used to buy raw material during the peak harvest season..

total debt:285.16cr
annual sales: 1625cr
debt as % of sales: 17.54%

So debt looks high but its short term and secured debt.. used to buy raw material..

=happy investing
whatsup-indianstockideas