Lords chloro alkali, turnaround analysis

Lords Chloro Alkali- What makes this turnaround story interesting?

September 4, 201811:05 am

With the Chinese pollution control impact getting louder, a lot many Indian companies are benefiting from the improved margins. Among the many, I found a small company showing strength & turnaround. it goes by the name “Lords Chloro Alkali Ltd”. 

Lords chloro alkali , a part of the Modi group has seen its fortune turnaround after almost 2 decade of insane struggle. Company’s revenue & profits are growing which is being reflected in the share price.

The company has given a return of 80%+ in the last one month & as usual SEBI has put a curb on its trading by bringing down the liquidity.

I have created a thumb rule of researching any company: I need to be able to explain the company in the simplest of language that a layman can understand. Let me try to explain the story.

Lords Chloro Alkali-Brief Introduction

Setup in 1979 at Alwar (Rajasthan), the company started out by the name of “Modi Alkalies & Chemicals Ltd” . The company started commercial production of Caustic Soda in 1983 with a total capacity of 125 TPD. 

Similar to the strong parentage of Tanfac Industries, Lords Chloro Alkali is a part of the Modi Group.

 

The company moved from high power required mercury cell manufacturing process to more efficient membrane call technology in 1992 .The company changed its name in 2007 from “Modi Alkalies & Chemicals ltd” to “Lords Chloro Alkali Ltd”.

Lords Chloro Alkali has been faced with huge debt & heavy losses since 2000 (Reason not known) and it had to be admitted to BIFR (Board for Industrial and Financial Reconstruction) in the year 2006 & post restructuring the huge debt & streamlining the operations, the company came out of BIFR in the year 2010.

Lords Chloro Alkali- Products

The company’s main product is Caustic Soda. Given that, Caustic Soda is produced through Chlor-Alkali process where output involves 2 co-products, Caustic Soda & Chlorine gas along with Hydrogen gas.

You can read more about the Chlor Alkali process here: Click Here

In order to get rid of toxic Chlorine, the company manufactures products which consumes Chlorine. These include Hydrochloric Acid, Calcium Hypochloride, Trichloro ethylene etc

Products include :

  • Caustic Soda
  • Liquid Chlorine
  • Hydrogen gas
  • Stable bleaching powder
  • Bleach liquor
  • Spent sulfuric acid
  • Hydrochloric Acid
  • Trichloro ethylene

End Usage industry:

  • Textile 
  • Pulp & Paper
  • Soap & detergent
  • Aluminium Smelting
  • PVC 
  • Bleaching
  • Pharma
  •  
Lords Chloro Alkali- Financials
Lords chloro alkali, turnaround analysis
Lords Chloro Alkali- BIFR

From the year 2000, the company has been incurring heavy losses. Given the meager revenue on top of the mounting debt & losses, Lords chloro alkali had no option but to be admitted to BIFR to survive. They got admitted to BIFR in the year 2006.

The high amount of debt compared to the revenue seems strange. Looks like a mismanaged expansion plan.

Story post BIFR
Lords chloro alkali, turnaround analysis
Lords Chloro Alkali- Plant Shutdown for 4 years

The company came out of BIFR in the year 2010. And within one year of normal operations, it shut down the plants with the reason being mentioned as the parts of plant getting exhausted due to aging. Having gone through the annual reports of other Chloro alkali companies, I have not seen any of them shutting down to replace the part of the plant and that too for a very long period of 4 years. To add to that it was just one year post the company coming out of BIFR. It appears to be management’s unwillingness to learn.

Lords Chloro Alkali- Planned capacity over years
Lords chloro alkali, turnaround analysis
Lords Chloro Alkali-Lot of Flip Flop in Planned capacity

Since 2016, the company has been starting to produce from its revamped facilities part by part. Because of the capacity increasing in phases coupled with increasing Caustic soda prices is helping the company show increasing revenue as well as increasing profit margins. This is going to continue for some time to come.

Overall, it appears to be a company neglected by the group and in the hands of incapable management in the past. Hope things will improve for the better going forward.

Lords chloro alkali, turnaround analysis
Lords Chloro Alkali- Questions

Given the small size of the company, there is very little information available about the company outside of the annual reports. Even the annual reports has very little info provided.

By, 

Shekhar Yadav

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Shekhar Yadav

I am a full time stock market investor. The blog is an extension of my research, thoughts & opinion. Please don't consider anything on this website to be an investment advise.

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