HSCL April 2024 - RA - 07052024084038

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HSCL: Expansion and acquisitions to drive further growth

HSCL (Himadri Speciality Chemical Ltd), is primarily engaged in the manufacturing


of carbon materials and chemicals. The company has five state-of-the-art coal tar
distillation plants in India. The company has two plants in Howrah, one in Hooghly,
one in Visakhapatnam and one in Korba, Chhattisgarh. It’s diverse product portfolio
includes speciality carbon black, coal tar pitch, refined naphthalene, advance
materials, SNF, speciality oils, power etc. catering to various industries such as
lithium-ion batteries, paints, plastics, tires, aluminium, graphite electrodes,
agrochemicals, defence and construction chemicals. Himadri operates in both
domestic and international markets exporting to 49 countries across the globe.

The recently released Q4FY24 results saw the company posting its highest ever
quarterly revenues and net profits. Commenting on the results and performance, Mr.
Anurag Choudhary, CMD & CEO of Himadri Speciality Chemical Ltd said: “We are
delighted to announce that the Company has become debt-free with positive net
cash balance as a result of our relentless focus on disciplined capital deployment
and working capital utilization. We also take pride in announcing that the Company
has achieved highest ever Sales, EBITDA, and PAT. This performance is a direct
result of our strategic initiatives and our team's tireless efforts to drive innovation and
excellence in everything we do.”
Not only have the quarterly numbers been amongst the best for the company, the
annual revenue and net profit numbers have also been the highest ever on an
annual basis. While the revues have marginally increased YoY, net profits have
nearly doubled YoY in FY24.

What is also seen as a favourable factor is that the growth in profits is also supported
by an YoY increase in the EBITDA margins as well as the net profit margins. From
the data, it can be seen that the company went through a rough patch during the
pandemic period of FY21 and FY22 but considerably improved the EDITDA and net
profit margins over the next two financial years.
Along with the Q4FY24 results, the company also announced that in order to support
the growth and increasing market demand, they are planning on a brownfield
expansion of a new speciality carbon black line of 70,000 MTPA (increasing the total
speciality carbon black capacity to 130,000 MTPA making it world’s largest at single
site) at an estimated capex of Rs 220 crores which is scheduled to be operational
within 18 months. Though there is a considerable time for completion of the project,
once operational, it will help add substantially to the top line as well as bottom line.
The company has been introducing new variants of carbon black grades that find
application across different industries. These include 7 specialty black series for e.g.
Onyx Speciality Carbon Blacks - premium grades that offer deep black color and
high purity, making them ideal for use in synthetic fibres, high performance plastics &
U.S. FDA compliant applications. Another is Baronx, premium-grade pigment that is
highly valued in both solvent and aqueous-based coatings and industrial decorative
paints.

Virtex black carbon series are for high performance speciality tyres application which
provides large range of surface area, structure and ASD optimizing grip, rolling
resistance and mechanical performance.

HSCL has a pipeline of innovative products in development with their research team
with a vision of playing a critical role in LiB value chain. In line with these objectives,
it acquired a 40% stake in Invati Creations Private Limited (Invati). This partnership
is built on a shared vision to transform the Lithium-ion battery industry by significantly
enhancing its storage efficiency, charging speed and battery lifespan.
HSCL also bought a 12.79% stake in Australian startup Sicona, that has developed
next-generation battery materials technology used in anodes (negative electrodes) of
lithium-ion (“Li-ion”) batteries that enable electric mobility and storage of renewable
energy.

Another acquisition which got completed last quarter was Birla Tyres. HSCL as a
strategic partner) along with Resolution Applicant - Dalmia Bharat Refractories
Limited (DBRL) participated in the corporate insolvency resolution process of Birla
Tyres Limited. LOI from the Resolution Professional informing that the Committee of
Creditors of the Corporate Debtor has approved the resolution plan submitted jointly
by the HSCL and DBRL was received and accepted on August 22, 2023.

Hon’ble NCLT, Kolkata Bench has approved on 19th October 2023 the resolution
plan submitted jointly by HSCL and DBRL for acquisition of Birla Tyres Limited under
the corporate insolvency resolution process (“CIRP”) in terms of the Insolvency and
Bankruptcy Code, 2016 (“IBC”).
Conclusion:

HSCL recorded its highest revenues and profits in FY24. These were supported by
improving EBITDA and net profit margins. The company has steadily diversified into
lithium battery solutions along with its existing carbon black business.

HSCL is also expanding its carbon business with capacity expansion expected to be
operational in one and a half years. It has also done a series of acquisitions which
should work well for the company over the next few quarters. The stock has had a
stellar run in the last one year with stock price growing nearly three times. With many
factors driving growth and continued momentum, the stock can easily touch levels of
650 over the next one or two years and has a potential to even double from current
levels if an investor has an investment horizon over next three years.
Ketan Sonalkar Sagar Wadhwa
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