Recently, I was going through my stock filter of companies that have significantly improved or tuned around their performance in the recent quarters. I keep checking this up as the companies that are seeing their fortunes change can provide good returns in quite a short period of time. In my quest to find such a stock, I came across a company which goes by the name of National Peroxide.
From the name, the first impression that I got was this seems to be a PSU because of the word “National” associated with it. But on digging deeper, I got to know that its a part of Wadia group. The name of other group companies will give you a better familiarity with the company which are Brittania, Bombay Dyeing, The Bombay Burmah Trading corporation & Go Air.
Wadia Group
Wadia Group Companies
The promoter group are usually not involved in the day to day operation of the business and is run by professional management. I any day would prefer a company run by the promoter group & not the professional management as they change ship if things go wrong.
When I first looked at the company’s financial & with the China Pollution thing getting so much highlight, I came to the conclusion that the company must have to do something with China (Chemical company-> Improving financials-> Must be something to do with China). But I was wrong here.
Now moving to the business part, the company manufactures only one product called as Hydrogen Peroxide.
Some facts about Hydrogen Peroxide:
Commoditized business
Used in bleaching of pulp and paper(max usage), de-inking of recycled paper : Lighten the color & whiten the pulp for use as white paper
Bleaching of textiles
Effluent treatment
Non-Polluting
Given that Hydrogen Peroxide is a commoditized product , it faces competition from cheaper imports from other Asian countries where supply exceeds demand. The problem was quite visible from the company’s financial statement for FY13-16.
After continuous efforts to fight the cheaper imports by National Peroxide & Hindustan Organic Chemicals Ltd, the government imposed anti-dumping duty on the import of Hydrogen Peroxide from Bangladesh, Taiwan, Korea, Indonesia, Pakistan, and Thailand for a period of 5 years which varied from $16.91 per tonne to $117.94 per tonne.
The anti-dumping duty is valid for 5 years implying the advantage to stay with the company for some time to come.
This would mean that the prices of imported hydrogen peroxide will be on par with the domestically produced hydrogen peroxide. That also help end industries using hydrogen peroxide as they would prefer domestic manufacturers to avoid forex risk.
Improving Financials-National Peroxide
Key Positives-National Peroxide
Competitive advantage-National Peroxide
There are some negatives as well. I could not find anything wrong with the operations of the company But two non-operations related instances needed to be looked into:
1. Fraud of ₹36 crore by the company’s senior employees- Over last couple of years, the senior employees used to get the bearer cheques signed by the MD who signed it carelessly without verifying it or following the set protocol. The MD was immediately asked to resign.
The co. expects to recover ₹18.96 cr and already have set certain amount as losses. I am yet to fully understand how it has been or how it will be treated in the financial statement & will post a blog once I am done with it.
2. Given the reputation & the debt-free nature of the company, in the past borrowed an amount to the tune of ₹50 cr & gave it to few of the group companies as inter-corporate deposits with an interest rate of 12.5%. Although, the entire debt was repaid within 2 years. But it raises a question on to what extent should one company support others of the group.
These are not pressing issues but need to keep a tab on.
Factors affecting future growth:
Currently operating at almost 100% capacity. Working on enhancing the capacity from 95KTPA to 150KTPA which will improve sales.
With the imposition of anti-dumping duty on hydrogen peroxide, prices are on the up
Paper industry has just started to recover & seems like this is going to continue
Please comment if you have any query.
Other reads:
Q4FY19 Result Analysis: Fine Organics Industries ltd | Himatsingka Seide Ltd | National Peroxide Ltd
By,
Shekhar Yadav