CAN VALIANT ORGANICS TURN OUT TO BE ANOTHER COMPOUNDER FROM THE AARTI GROUP?

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Company Profile:- 

Valiant Organics Limited is a chemical manufacturing company with its focus on manufacturing and marketing of specialty chemicals. The products find several applications mainly in the agro-chemical, pharmaceutical, rubber, dyes, pigment and in the making of veterinary drugs.

The business was originally set up in 1984 as a partnership concern under the name of Valiant Chemical Corporation. It was later incorporated as a private limited company in 2005 with the aim of acquiring this partnership firm and, subsequently, the business has been run in Company. In 2015, the Company was further converted into public limited company.

Valiant Organics Ltd. (VOL) is engaged in the business of manufacturing of chemicals for Agro Intermediate and Pharma. Company is the market

leader for Chloro Phenols in India & amongst the leading manufacturer of 

Para Nitro Aniline (PNA).

 Operational performance over the years :-

Since its listing on SME platform, Valiant Organics has significantly ramped up capacities through massive capacity expansions that has led to an exponential growth in revenues. The company was able to achieve this without taking any debt.

Valiant organics has been able to achieve this exponential growth without losing their Operating Margins significantly in the recent years.

As you can see, Margins have grown at a CAGR of 3% over the last 11 years.

Valiant Organics is also a debt free company with high ROCE and good PAT/CFO conversion. The company also has good amount of cash on its books that is sufficient for their working capital requirements as well as any small scale acquisitions. The company has strong set of financials with high margin profile and high return ratios. Despite, such superior growth backed by capex and acquisitions, VOL’s debt-equity ratio is comfortable at 0.31x for FY20.

Business Verticals:-

Valiant Organics gets 85% of its revenues from the domestic market while the latter 15% of revenues come through exports.

Company is the market leader for Chloro Phenols in India & amongst

the Leading manufacturer of Para Nitro Aniline (PNA). Over the years,

company has developed an extensive domain expertise in multiple process chemistries including Chlorination, Ammonolysis, Acetylation,

Hydrogenation, Sulphonation and Methoxylation. Its products have

been used in various industries such as as Agrochemicals account 40% of its topline followed by dyes & pigments 20%, Specialty chemicals 30% and

Pharmaceuticals 10%. Chloro phenols account 62% of revenue while PNA

contributes rest 38%.

The management remain confident of growing the market share in the

domestic and international markets by virtue of strong and niche product

portfolio, enhanced capacities and R&D capabilities. The company is

well positioned to take advantage of the growing opportunities in

specialty chemicals, as India’s specialty chemicals market sets itself

on the growth path for the coming years, and with a rising need for

specialty chemicals in the end-use domestic markets.

Capacity Expansion & Acquisitions :-

VOL started expansion of its manufacturing capacities at Sarigam
and Jhagadia in FY 2018-19. Despite all the macro challenges, it continued
expanding and augmenting its manufacturing capabilities and
completed the expansion of Chloro Phenols capacity at the Sarigam plant.
 It achieved a capacity expansion of 18,000 MT per annum during the year. The expansion has enhanced the Company’s capability of adding high margin downstream products by using new raw materials. 

The company is also working on new projects at Jhagadia. The Company
has a landbank in Sayakha (68,000sq.m.) and Dahej (12,000 sq.m.) for expansion. A capex of Rs 100 crore has been allocated for the
expansion projects at Jhagadia in FY21 and it is expected to commence
other capacity expansion projects in FY 2021-22.

 Further, in order to benefit from surging and high growth API segment, company is expanding its API business which will increase the pharma revenue share in coming years. 


The company has increased the capacities of hydrogenation products from the earlier 18,000 MT per annum to 26,000 MT per annum. 

Further, They are increasing the Ammonolysis capacity at Tarapur and Vapi plants from ~13,000 MT per annum to 16,000 MT per annum.

 They are likely to commence operations of Para Amino Phenol (PAP) and Ortho Amino Phenol (OAP), which are import substitutes, in the second half of FY 2020-21.

 PAP has been identified as key intermediates of pharma products by the government, which is to be incentivised under recently announced PLI Scheme.

Further, to improve operational yield, cost efficiencies, and safety, the company's constant endeavour is to automate their operations and reduce human intervention. Today, the Tarapur, Vapi and Jhagadia plants are in the process of being automated. 

The synergistic acquisition of Amarjyot Chemical Limited during
the previous year, has made Valiant Organics one of the leading manufacturers and suppliers of chemicals. It helped Valiant attain increased manufacturing capacities and also provided significant depth
to the product offering with a wide spread of value-added
products.

 Today, Valiant organics can command a niche and value-added product portfolio that find applications in dye, pigments,
pharma and agro-chemical intermediates industries.

Final thoughts :-

The Aarti group has been a major wealth creator if you look at company's like Aart Industries, Aarti Drugs and Aarti Surfactants. I feel Valiant Organics can also be a wealth creator from the Aarti Group.

The business is doing well and they are ramping up capacities significantly due to heavy demand. The company has also become a market leader in two or three niche products that helps them to concentrate on diversifying into other sectors.

Sources:- Annual Report, Ashika Research Report, Website.

Disclaimer :- I have a holding in all the companies discussed above. This is not a recommendation to buy/sell any stock.