A detailed equity research report on Yasho Industries Ltd

‘Make in India’ initiative should facilitate industry with common infrastructure and consequent rapid flow of foreign direct investment into sector which should help accelerate growth. Strong credit metrics and diversified product portfolio are expected to act as principal growth enablers.

About Yasho Industries Ltd

Strength of in organic process technology allows it to develop sustainable manufacturing processes so that quality products can be delivered for customers. Manufacturing facilities of the company which are located in Vapi, Gujarat is 200 km from port, allowing the company to serve customers across globe. Yasho Industries Ltd tests its products extensively in well-equipped lab, helping customers to produce high-quality products and succeed with help of trusted expertise, confidence, global supply and independent strength.

Business model of Yasho Industries Ltd

Yasho Industries Ltd manufactures fine and specialty chemicals and exports products to all over globe, such as USA, Europe, Asia, Middle East and Brazil. Huge array of products caters to various industries and the company has strong long-term relationship with customers in over 50 countries. Because of continued focus on research, development and innovation, the company was able to expand its product range. Engineering and process teams designed multipurpose plants, allowing the company to manufacture over 100 products and fulfill customer’s quality and volume requirements.

Track record of management

Mr. Parag Jhaveri is Managing Director and CEO of Yasho Industries Ltd. He has done Master of Science degree in Chemistry from Mumbai University. His experience spans across 3 decades of experience in chemical industry. He has played a critical role in making sure about strong growth of organisation. He oversees functions such as sales, finance, R&D, and marketing.

Mr. Yayesh Jhaveri is the company’s Whole-time Director & CFO. Mr. Yayesh Jhaveri is commerce graduate from Mumbai University, with experience spanning across 3 decades in chemical industry. He played an important role in growth of the company and handles purchase, logistics, supply chain and production planning.

Mr. Vinod Jhaveri is Chairman and Executive Director of the company. He is a commerce graduate from Gujarat University and is main guiding force behind growth and business strategy of the Company. He plays a crucial role for overall management affairs of the company.

Financial performance of Yasho Industries Ltd

Yasho Industries Ltd delivered strong performance in FY23 even though market was impacted by global turmoil and macroeconomic challenges. Ability to adapt and respond to market dynamics supported the company’s steady performance. Total revenue for year grew 9.6% to INR683 Crore from INR623 Crore in previous year. To capitalise current opportunity further, the company expects that exports will remain huge priority. Exports made up ~66% to total revenue, mainly because of high-quality nature of products and long-standing relationships with important customers.

EBITDA of the company went up to INR126 crore from INR103 crore in FY22, marking 22% increase. This growth stemmed from improved product mix, better realisation, and capacity expansion post debottlenecking despite significant increase in raw material and finished product prices. Net profit of the company went up by 31% to INR68 Crore from INR52 Crore in prior fiscal. Focus of the company on industrial chemicals continues to pay off, and it expects that this sector has tremendous potential. Plans are there to invest in research and development to develop high-quality products catering to customers’ demands. Demand for such chemicals continues to increase on a global scale, and the company appears to be confident that this segment should support future growth and profitability.

In 1Q24, the company’s revenue from operations came in at INR150.3 crore, exhibiting a decline of 15.2% year-over-year. Its EBITDA and PAT came in at INR26.8 crore and INR14.8 crore in 1Q24. Industrial business (rubber, lubricant and specialty chemicals) made up ~81% of total revenue with strong demand for critical products throughout geographies. Even though the company saw decline in revenues, volumes grew by Q-o-Q basis. Exports were a significant contributor, accounting ~64% of total revenue in 1Q24.

Future prospects for Yasho Industries Ltd

Yasho Industries Ltd discussed its capex initiatives and its greenfield project at Pakhajan continues to progress as planned and should began production in early FY25. The company considers this project crucial for its growth strategy and has strong confidence that it will create substantial value in long-term. The company continues to focus on expanding manufacturing capacities, diversifying product portfolio, and extending market reach. Indian specialty chemicals market continues to grow at almost twice global average. India’s population base having lower per-capita consumption of chemicals and relatively strong GDP growth outlook exhibits that significant untapped potential remains to be capitalised. Given that Yasho Industries Ltd is an established supplier of specialty chemicals to leading players from different industries, it is well-positioned to take advantage of growth opportunities lying ahead.

Future growth of the company stems from additional advantages of product development capabilities, branding and distribution and strong research and development centre. With roll-out of Goods and Services Tax (GST), double taxation has been pre-empted and all state and central taxes have now been rationalised and made consistent. As a result of this, future production facilities will be on basis of logistical considerations, with supply to consumer industries being market-driven.

Industry analysis

Market size of chemicals & petrochemicals sector in India has been pegged at ~$178 billion. Chemicals industry in India appears to be highly diversified, covering over 80,000 commercial products and is classified into Bulk chemicals, Specialty chemicals, Agrochemicals, Petrochemicals, Polymers and Fertilisers. Country has a proximity to Middle East, which is world’s source of petrochemicals feedstock. This makes for India’s economies of scale.

India has been categorised as strong global dye supplier, making for ~16% of world production of dyestuff and dye intermediates. Chemicals and Petrochemicals market should reach $300 Bn by 2025. FDI in chemicals sector (excluding fertilisers) was to tune of ~$20.96 billion (between April 2000 to December 2022). Combined exports of Major Chemicals and Major Petrochemicals for year 2022-23 (up to July 2022) grew to INR48.05 thousand Crore from INR47.35 thousand Crore. Demand for chemical products should grow at ~ 9% p.a. over 2020-25.

Fertilisers production (weight: 2.63%) went up by 5.4% in October 2022 versus October 2021. Cumulative index grew 10.5% during April to October 2022-23 in comparison to corresponding period of prior year. 100% FDI was enabled under automatic route in chemicals sector (except in certain hazardous chemicals).

Risk factors

Tightening of financial conditions and risks to global economy have increased because of Russia-Ukraine crisis. Higher commodity prices continue to pose challenging trade-offs for global central banks. Significant decrease in scale of operations, elongation of the company’s working capital cycle, which can lead to deterioration in liquidity position or might result in completion of capex can pose challenges to overall operations of the company.

Exports accounted for 66% to its total revenue mainly because of high-quality nature of products and long-standing relationships with main customers. Since majority of its revenues are generated through exports, fluctuations in foreign currency might impact business operations of the company.

Shareholding pattern of Yasho Industries Ltd

Promoters of Yasho Industries Ltd held ~71.54% of the company’s stake by end of June 2023 and this stake has remained consistent since March 2022. Mr. Vinod Harilal Jhaveri continues to hold ~29.57% stake while Mr. Yayesh Vinod Jhaveri held stake worth 9.45%.

While FIIs were holding ~0.13% of the company’s stake, public shareholders make up ~28.33% of shareholding pattern of Yasho Industries Ltd. Promoters of the company have over 3 decades of experience in chemicals industry, which has led to established and well-developed relationships with its customers.

Valuation and investment rationale

Stock of Yasho Industries Ltd trades at ~35.3x of FY23 EPS in comparison to sectoral average of ~42.23x, exhibiting that Yasho Industries Ltd has significant growth potential. Growth in stock price is expected to be supported by increasing scale of operations, strong credit metrics, diversified product portfolio, geographical presence and capabilities to see revenue growth over medium term.

The company has ~148 products in its portfolio, which caters to different categories to food antioxidants, aroma chemicals, rubber accelerators, lubricant additives and specialty chemicals segments. Out of these, rubber chemicals, lubricant additives and specialty chemical made up ~74% of the company’s revenue in FY22. However, aroma chemicals and food antioxidants appear to be highly competitive segments and provide low margins. The company continues to shift its focus on sale of high-margin segments, that generate EBITDA of between 18%-25%. Therefore, revenue contribution from higher margin segments is expected to increase, which should help increase profitability over medium term.

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