Haryan Leather Chemicals

Haryan Leather Chemicals Ltd.

http://www.leatherchem.com/

1.) Revenue Breakup :

Leather Chemicals - 95%

Non Leather (Textile chem.) - 5% (no focus, might exit)

2.) REACH Compliant.

3.) According to promoter, no pollution problem / risk.

4.) Export presence in 20 countries.

5.) Promoter believes that Indian leather exports can triple in 5 years & natural leather is not a die-ing / declining industry.Usage in Furnishing & Autos.

Press Trust of India  |  New Delhi  July 2, 2013 Last Updated at 18:35 IST

Leather exports may touch $14 bn mark by 2017; double jobs

Our strategy includes doubling our existing 1% share in the American market and exploring new markets like Russia, Japan and Latin America, says CLE Executive Director R Ramesh Kumar

India's leather exports are expected to touch the $14 billion level by 2017 and may double jobs in the sector to 5 million by that period, Council for Leather Exports (CLE) said today.

At present, the sector employs 2.5 million people mainly in leather hubs, including Agra, Kanpur, Kolkata, Chennai, Mumbai, Bangalore and Puducherry.

There has been a sluggish demand in the US and European markets, he added."We expect leather exports to touch $14 billion by the end of the 12th Five-Year Plan (2017). In the last fiscal, leather exports grew 3% to $5 billion," CLE Executive Director R Ramesh Kumar said.

He was talking to reporters on the sidelines of a function organised by Italy-based Riva del Garda which organises leather items fair named 'Expo Riva Schuh India'.

The US and Europe together account for over 65% of the country's total leather exports.

Asked about the roadmap to increase leather exports, Kumar said, "Our strategy includes doubling our existing 1% share in the American market and exploring new markets like Russia, Japan and Latin America."

This will also help in employing more people in the sector. "We expect that jobs would be doubled to 5 million in the sector by 2017," he added.

Of the total people employed, 70% of them are women.

"By providing more jobs to people, the standard of living of people would increase as most of them are under- privileged," Kumar said.

6.) Competitors :

BASF - pioneer of leather chemicals & largest chemical co. in the world. Is the big daddy of the chem. industry. German technology unparalleled in the world. Has the most comprehensive range of leather chemicals. 

But Indian operations (leather chem. division) lacks focus.

Balmer Laurie - Again a conglomerate with limited focus on leather chem. but huge range & capabilities. Present more in the initial stages ofleather chem. where HLC is not present. Only few common competing products.

Others - Lanxess, Stahl (Dutch).

http://www.indofilcc.com/

7.) HLC's products are priced at par to the competitors. Not a price warrior. Competes on the basis of product quality. 

8.) Strengths :

i.) Focus on leather chem. 

ii.) Customization - Co. tweaks its products as per weather conditions. For example, Chennai is hot as compared to say Jalandhar. MNC competitors supply the same chem. to all whereas HLC customizes as per client needs.    

iii.) Tech. collaboration with ICAP SIRA, Italy & tie up with VISMON, Spain.

9.) Market Share (India) ~ 4-5%

10.) Addressable market in India ~ ₹550Cr. & growing very fast (refer to pt. no. 5)

11.) Leather treatment cycle :

Raw Leather ->-> Wet Blue -> Finished Leather

HLC is not present in the first 70% of the treatment process which consists of mostly commodity chemicals.

Co. makes leather chem. for only the last 30% of the process (from Wet Blue to Finished Leather)

Hence, HLC is in the "fashion" chem. part of leather processing which imparts gloss, color, texture, feel to the leather.

 

12.) New Foray into "Plastic Additives".

Co. is setting up a brownfield plant for manufacturing import substituting "Plastic Additives". 

Only manufacturer of such "Plastic Additives" in India.

The said "Plastic Additives" will be used in "Outdoor plastics" like Finesta windows, etc. to impart strength & other properties. 

Capex = ₹3.5Cr.

The good thing is that the said plant can be used interchangeably for manufacturing leather chems. and / or "Plastic Additives".

As the co. is already working at 93% capacity utilization in FY13, & with a growing leather chem. market, risk of failure is quite slim.

13.) Co. is presently supply constrained. 

14.) To make investments in automation as Unskilled labor unavailable!  Also looking at outsourcing.

 15.) Export margin > Domestic margin.

16.) No. of engineers - 10

17.) Real Estate :

Jind, Haryana : 2 plants - 3.5 acres (mother plant) + 0.5 acres (EOU)

Corporate Office : Gurgaon - 28,000 sq. ft. bought for ₹6.25Cr. in FY10.

Former registered office : Bhikaji Cama Place - 1500 sq. ft. (Co. has shifted to the new Gurgaon office in FY11 but is still holding this office) 

New Flat in Gurgaon : Advance of ₹76 lakhs (as on 31/03/13) - Promoter says this is for guest house but I suspect its for personal use as when I asked the CFO before the AGM, he ducked the question.

18.) Replacement Cost of Fixed Assets = ₹50-80Cr.

19.) Present Installed Capacity = 4910 TPA

New Capex (Plastic Additives / Leather Chem.) = 1200 TPA

Expected Incremental Revenue from new capacity by FY16 ~ ₹30Cr. (depending upon product mix.)

Commissioning - Sept. 2014

20.) Realizations / T :

FY07 = ₹64,712 / T

FY13 = ₹87,209 / T

6 year CAGR = 5.1%

Promoter says that most of the realization growth is due to increasing value addition & only some of it is due to increase in RM prices.

21.) Volume Growth : FY14E = 15%

Margins should sustain.

22.) Average R&D / Sales over last 6 years > 2%.

23.) RoE is low due to CWIP (₹3.27Cr. as on 31/03/13) & huge investment in real estate (₹6.25Cr + ₹76 lakhs) = ₹10.28Cr. or 48.3% of Networth (FY13 Networth = ₹21.28Cr.) 

Excluding CWIP & real estate, adjusted Networth = ₹11Cr. & FY13 EBITDA = ₹4Cr.

24.) Promoter Holding came down from 43.5% in FY09 to 40.85% in FY10 due to stake sale by HSIDC.

Shareholding Pattern

HARYANA LEATHER CHEMICALS LTD. Scrip Code : 524080 Quarter ending : March 2009 Shareholding of securities (including shares, warrants, convertible securities) of persons belonging to the category Promoter and Promoter Group Sl.No. Name of the Shareholder Details of Shares held Encumbered shares (*) Details of warrants Details of convertible securities Total shares (including underlying shares assuming full conversion of warrants and convertible securities) as a % of diluted share capital No. of Shares held As a % of grand total (A)+(B)+(C) No As a percentage As a % of grand total (A)+(B)+(C) of sub-clause (I)(a) Number of warrants held As a % total number of warrants of the same class Number of convertible securities held As a % total number of convertible securities of the same class 1 Baby Ratnam Jain 600 0.01 0 0.00 0.00 2 Bronze Trading Ltd 25,000 0.51 0 0.00 0.00 3 Harish Kumar Gupta 29,300 0.60 0 0.00 0.00 4 Haryana State Industrial Development Corporation Ltd 1,00,100 2.04 0 0.00 0.00 5 ICAP Sira Chemicals & Polymers SPA 7,68,470 15.66 0 0.00 0.00 6 Kaushal Jain 14,700 0.30 0 0.00 0.00 7 Munak Holdings Ltd 88,500 1.80 0 0.00 0.00 8 Manik Jain 7,300 0.15 0 0.00 0.00 9 Munak Credit & Investments Pvt Ltd 1,100 0.02 0 0.00 0.00 10 Munak Credit & Investments Pvt Ltd 15,235 0.31 0 0.00 0.00 11 Munak Engineers Pvt Ltd 16,598 0.34 0 0.00 0.00 12 NK Jain Holdings & Fin Pvt Ltd 13,900 0.28 0 0.00 0.00 13 Narendra Kumar Jain 2,82,360 5.75 0 0.00 0.00 14 Pankaj Jain 4,700 0.10 0 0.00 0.00 15 Pankaj Jain 4,53,910 9.25 0 0.00 0.00 16 Savita Aggarwal 1,38,190 2.82 0 0.00 0.00 17 Sippy Jain 1,43,200 2.92 0 0.00 0.00 18 Vijay Kumar Garg 23,645 0.48 0 0.00 0.00 19 Vijay Kumar Garg Contractor Pvt Ltd 7,500 0.15 0 0.00 0.00   Total 21,34,308 43.48 0 0.00 0.00 (*) The term encumbrance has the same meaning as assigned to it in regulation 28(3) of the SAST Regulations, 2011.

Shareholding Pattern

HARYANA LEATHER CHEMICALS LTD. Scrip Code : 524080 Quarter ending : June 2009 Shareholding of securities (including shares, warrants, convertible securities) of persons belonging to the category Promoter and Promoter Group Sl.No. Name of the Shareholder Details of Shares held Encumbered shares (*) Details of warrants Details of convertible securities Total shares (including underlying shares assuming full conversion of warrants and convertible securities) as a % of diluted share capital No. of Shares held As a % of grand total (A)+(B)+(C) No As a percentage As a % of grand total (A)+(B)+(C) of sub-clause (I)(a) Number of warrants held As a % total number of warrants of the same class Number of convertible securities held As a % total number of convertible securities of the same class 1 Baby Ratnam Jain U/G Pankaj Jain 600 0.01 0 0.00 0.00 2 Bronze Trading Ltd 25,000 0.51 0 0.00 0.00 3 ICAP Sira Chemicals & Polymers SPA 7,68,470 15.66 0 0.00 0.00 4 Kaushal Jain 14,700 0.30 0 0.00 0.00 5 Munak Holdings Ltd 88,500 1.80 0 0.00 0.00 6 Manik Jain U/G Pankaj Jain 7,300 0.15 0 0.00 0.00 7 Munak Credit & Investments Pvt Ltd 1,100 0.02 0 0.00 0.00 8 Munak Credit & Investments Pvt Ltd 15,235 0.31 0 0.00 0.00 9 Munak Engineers Pvt Ltd 16,598 0.34 0 0.00 0.00 10 NK Jain Holdings & Fin Pvt Ltd 13,900 0.28 0 0.00 0.00 11 Narendra Kumar Jain 2,82,360 5.75 0 0.00 0.00 12 Pankaj Jain 4,700 0.10 0 0.00 0.00 13 Pankaj Jain 4,53,910 9.25 0 0.00 0.00 14 Savita Aggarwal 1,38,190 2.82 0 0.00 0.00 15 Sippy Jain 1,43,200 2.92 0 0.00 0.00 16 Vijay Kumar Garg 23,645 0.48 0 0.00 0.00 17 Vijay Kumar Garg Contractor Pvt Ltd 7,500 0.15 0 0.00 0.00   Total 20,04,908 40.85 0 0.00 0.00 (*) The term encumbrance has the same meaning as assigned to it in regulation 28(3) of the SAST Regulations, 2011

  

    

25.) Corporate Governance :

Promoter is a technocrat & not RoCE oriented which is evident from pt. nos. 22 & 23.

In the FY13 AGM, Mrs. Sippy Jain (wife of Promoter) was made a Whole Time Director though the employees openly concede that she's a house wife. (though now that New Cos. Act has made female representation on board mandatory, all the house wife's of promoters will be similarly  "empowered"!) 

26.) Valuation :

CMP = ₹ 17/-

MCap. = ₹8.3Cr.

EV = ₹8.3Cr.

TTM :

Sales = ₹41.3Cr.

EBITDA = ₹4Cr.

EV/ EBITDA = 2x

FY13 Op. Cash Flow = ₹3.7Cr.

EV / Op. Cash Flow = 2.24x  

Div. Yield = 3.5%

27.) Portfolio Weightage = 1%