Camlin Fine Sciences - Well-positioned to benefit from Sectoral Tailwinds

Summary

Leading integrated manufacturer of the most preferred traditional food antioxidants
Vertical integration right from basic raw ingredients to intermediates and derivatives
Successful completion of the greenfield expansion and commencement of commercial production of its Diphenol Facility in Dahej SEZ
Business Profile greatly benefited from the newly started Dahej plant

Camlin Fine Sciences (NSE:CAMLINFINE) is the leading integrated manufacturer of traditional antioxidants. The company has four key businesses– shelf-life solutions (~53% of FY21 revenue – food, animal nutrition, pet food, biofuels, aquaculture), performance chemicals (29% - pharma intermediaries, petrochemicals, dyes and pigments, polymers, agrochemicals), aroma ingredients (16%, feed & food, personal care and home care, flavors & fragrances, pharmaceuticals), and health & wellness (~2%, functional foods, livestock feed, dietary supplements, pet food). It is a leading global producer of antioxidants and vanillin. 

CFS caters to a wide range of industries and offers quality traditional antioxidants for the food, pet food, and animal nutrition industry. The company enjoys a dominant position in the global antioxidant industry and is the third-largest producer of vanillin in the world. It derives over 85% of its revenue from exports with more than 100 products sold in ~80 countries. 

Source: Investor presentation

Camlin has come a long way from just being an ink and color company to a fine sciences firm. Market knowledge, expertise, product offering, and customer service are its key competitive strengths.

The company has five manufacturing facilities and is greatly benefiting from its newly started Dahej plant in 2021. It ranks amongst the top players in the vanillic aldehyde market globally with other leading names like Solvay, International Flavors $ Fragrances, Ennloys, etc.

Camlin Life Sciences Pros
 
i) Benefits of vertical integration  

Camlin is a vertically integrated provider of diverse innovative antioxidants & shelf life extensions, aroma ingredients, performance chemical products, and related solutions for food, animal nutrition, pet food, pharmaceutical, and petrochemical industries globally. The company has three decades of experience and has acquired in-depth product technical know-how and an understanding of customers’ needs over the years. The company has a wide global reach through superior sourcing, logistics, and service. Camlin’s Ravenna plant, in Italy, produces the basic raw material hydroquinone and catechol which are translated into a wide range of downstream products like TBHQ, BHA, 4-TBC, Guaiacol, etc. through its vertical integration capabilities. Camlin’s business profile has improved greatly as a result of the start of commercial production Dahej plant in 2021 as the manufacturing cost of diphenols in India is much lower compared to the cost of procuring them from its Italian subsidiary. With the 10,000 MT greenfield facility, Camlin is expected to increase its presence in the aroma and fragrance segment and gain shares in the domestic vanillin market. The commercialization has also doubled CFS’ diphenol capacity along with the Italy facility.

ii) Wide customer base

Camlin caters to diverse industries such as food, fragrance, pet food, animal nutrition, petrochemicals, pharmaceuticals, agrochemicals, polymer, biodiesel, etc. It ranks among the top players in the Food Antioxidants market globally with other leading names like ADM, Barentz, BASF, Du Pont, etc. Over the years, Camlin has established a reputation for quality and service and has a customer list of more than 1000 customers.  Some of Camlin’s key customers are Adani Wilmar, FMC Agricultural Products International, Vitablend Nederland B.V., etc. It supplies a range of products to Europe, the USA, Latin America, Asia, and the Far East.  The company has a large global market potential with strong entry barriers in the form of long gestation periods, high Capex, complex chemistry, tight regulations, and process technology.

iii) Strategic Alliances and Partnerships 

CFS has a strategic tie-up with Lockheed Martin, a leading aerospace and defense company in the U.S., for manufacturing and supply of a specialty chemical since 2017 for developing innovative technologies to unlock the full potential of the green energy of flow batteries to store renewable energy. Camlin also completed the acquisition of a controlling stake (80%) in AlgalR Nutrapharms, which is engaged in the business of manufacturing DHA, EPA acid, and downstream products. It also acquired a 33.5% stake in DresenQuimica, Mexico in 2021.

iv) Growth through Diversification

Camlin Fine Sciences was formed as a result of a demerger from its parent company in 2006. It expanded overseas through the acquisition of a hydroquinone and catechol manufacturing facility in Italy in 2011. The company then diversified into the manufacture of antioxidant blends for the food industry in 2014 and later expanded into animal nutrition in 2018.

v) The Indian chemical industry is expected to grow at a CAGR of ~9% by FY 2025

There is a rising demand for consumer products formulated using plant protein, healthier fats, and fewer synthetic ingredients in India and manufacturers should benefit from domestic production initiatives like Make in India and PLI schemes. The global natural food antioxidants market size is projected to grow at a CAGR of 7% from 2022 to 2027. The Indian chemical industry is poised to grow to $270 billion by 2025 while the global antioxidants market is projected to reach $6 billion by 2028 and given its leading market share, Camlin is expected to gain from these growth trends.

Valuation

Camlin has a market capitalization value of more than Rs.2,100 crores. Shares of the company are currently trading near the Rs.140 mark and sport a PE of 36x. The valuation and price have corrected reasonably in the last year. Camlin Fine share prices gained by ~180% in the last three years and 20%+ in the last three months. The company has decent ROE and ROCE values at 10% and 14% respectively. Camlin’s promoter holding is low at 21% with zero pledged percentage.

CFSL has registered substantial improvement in its credit profile and operating performance over the last three years. Its EBITDA increased to Rs.1,800 million in FY21 backed by strong revenue growth of 13% YoY. The latest quarterly revenue also grew 22% Q/Q on robust demand. Increased profitability also led to improved interest coverage and leverage. The company’s cash flows remained negative in 2021 as a result of large working capital outflows and Capex for new projects. The cash flow is expected to remain negative in the current year as well.  

Conclusion

Camlin’s ramp-up of the Dahej plant and overseas expansion are strong future growth drivers. The company’s product mix and cost structure have immensely improved from the beginning of commercial production at the Dahej plant. It is also making good progress in scaling its operations on a global level with the addition of value-added products. Camlin is expected to become one of the lowest-cost producers of diphenols given its strategic Dahej plant. With a 90-year-old legacy and technical capabilities, expanding customer base and geographical footprint as well as a diverse product mix, Camlin is well-positioned to benefit from sectoral tailwinds. The shares of Camlin Fine Sciences are currently trading ~40% below their 52-week high making a good entry point for investors.