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Published on: Nov. 15, 2021, 11:30 a.m.
Yasho Industries on the move
  • The Jhaveris: going from strength to strength

By Daksesh Parikh. Executive Editor, Business India

Any report that there is a company whose share prices have shot up 7.7 times in the span of 12 months would probably be met with disbelief and raised eyebrows. Even financial savvy investors may be a little sceptic. The normal reaction would be that this is an operator driven company – many of which mysteriously surface during bull runs. One may be forgiven for being more than a bit circumspect about the same.

The company under discussion is Yasho Industries, a BSE listed company in fine chemicals in the speciality chemical segment, with a market cap of Rs1,440 crore. The Rs10 paid up shares of the company, which were moving in the range of Rs150-160 in November 2020 are trading at around Rs1,250 a year later. 

Not many outside the chemical industry would have heard of Yasho Industries Ltd. The company was listed on the BSE SME exchange in 2018 and graduated to the main board in FY21. The Gujarat based chemical company, with three units in Vapi, has witnessed a dream run that may understandably cause all-round disbelief.

Normal investors would have baulked at investing in a company which saw such a steep rise in prices in such a short time. The company share prices were trading at under Rs500 till as late as July 2021. But smart investors like Ashish Kacholia, Bengal Finance & Investment Private Limited, promoted by Om Prakash Agarwal and Shyam Sundar Agarwal, have increased their wealth manifold by spotting such gems way before others looked at the company differently.

Like private equity companies these investors take bets on promoters and their strategy and vision, and are not guided as much by financials. They recently picked up 2.11 per cent each through a preferential issue made in October at a price of Rs855 each. The total investment was to the tune of Rs42.72 crore. At the time of listing on the SME exchange the total proceeds were around Rs10 crore and the IPO was subscribed by just 1.05x.  On hearing the news about the celebrity investors taking a stake in the company, the share price moved up to Rs1,250.

These investors are obviously taking a long-term review. On 11 November, when it reported its half yearly performance, other investors may well have sat up and started rating the company. For the first half of the year the company’s PAT, at Rs24.6 crore, was more than the entire profit earned in the previous year (Rs21.47 crore). The total income for the first half of the year, at Rs271 crore, was 68 per cent higher than the profit earned in the half year ended September 2020. The total income for the year was Rs359 crore. The P/E based on the last four quarters now stands at a reasonable level of 30x. A level lower than some of its competitors. 

Speciality chemicals prices are at heightened levels due to the disruptions in supplies from China, and global companies looking at sourcing goods from India. Volume growth is seen across sectors. Along with volume growth, Parag Jhaveri, 55, MD & CEO attributes the performance to the “change in product portfolio with more emphasis on speciality chemicals, and not just on the China + 1 strategy”. The company products may be broadly classified under five segments – aromatics, food antioxidants, rubber chemicals, lubricants and speciality chemicals.

While it started with catering to the first two segments which come under the category of Fine Chemicals, the margins are better in the last three segments: rubber, lubricants and speciality chemicals. The margins are in double digits. In aromatics, the company caters to personal products like cosmetics, flavours, fragrances, toothpaste, etc.

Likewise in food and synthetic antioxidants, it markets its products under the brand Yantq and caters to animal feed and bakeries (wafers). Its rubber chemicals cater to manufacturers of rubber tyres and components like conveyer belts, surgical gloves, latex gloves and condoms. Lubricant additives are used in engine oil and grease. Speciality chemicals are needed in printing inks, colours, bulk drugs, API and agro chemicals. 

The company’s wide portfolio enables it to cater to diverse clients like Dabur India, Wacker, HP, Indian Oil, Balmer Lawrie, Continental Tyres, MRF, JK, Apollo and Lanxess.

The market for lube, rubber and speciality chemicals also has a higher growth rate than other two. The bulk of the products are exported to more than 1,000 clients based in 50 countries, including those in Europe, US and other parts of the world. Only 37 per cent of its products are marketed in India.  

Started as a family business in 1985 by Vinod Jhaveri, now 82 years old, the promoters are still hands-on in the business. Parag V Jhaveri is a technocrat while his younger brother Yayesh V Jhaveri is a commerce graduate. Yayesh handles the production part. All the attention is focussed on only one business and there is no other business to divert the attention span of the key management.

The company, over its 36 years, has worked hard on getting various approvals and certifications in the global market – ISO-9000-2015, Halal, Star-K Kosher, Fami-QS and REACH in Europe. These certifications give them a competitive edge to operate in these markets. 

What is noteworthy is that the company does not have any technical collaborators. Everything is done in-house with their own processes. The entire R&D is done in-house by a dedicated team of engineers. Earlier this was headed by Parag Jhaveri while currently it is done by Dishit Parag Jhaveri. Dishit, after graduating from UDCT, Mumbai, had done his BTech from the University of Pittsburgh, USA.

Vinod Jhaveri, Chairman and Executive Director, says: “We have steadily built up our strengths in innovation, customisation, manufacturing, as well as in global distribution, to become pioneers in the industry. Built on the vision to become a leading customer-centric producer in the chemical space, we share longstanding associations with some of the biggest companies in the world.” More than 40 per cent of the total sales are direct sales and 60 per cent is through distributors. 

Geographic diversification

While there are quite a few chemical industries in Vapi in the GIDC belt, few have been able to scale up rapidly. Yasho Industries had a capacity of 5,500 mtpa at the time of listing on the BSE small exchange in 2018. Over the past three years it has doubled capacities and has three factories located in Vapi. While the funding was done through a judicious mix of capital in debt, in the earlier years the debt was understandably much higher.

The company has, over the years, been using a part of the profit in paring debt, which stood at Rs116 crore as on 31 March 2021. The debt equity ratio has been trending downwards. In FY17 it was 6.8, which was brought to 3.8 in FY18, 2.9 in FY29 and further scaled down to 2.5 in FY20 and 1.7 in FY21.

The entire impact of the third unit, as also the debottlenecking in the earlier two units, will be felt in FY23. As a measure of diversification, it is now contemplating a factory in another state, close to a port. Camlin Fine Sciences, one of its competitors in speciality chemicals, has a large presence in Dahej, the port town in Gujarat. BASF, one of the large speciality chemicals producers, also set up a new unit at Dahej in 2014. Dahej is fast becoming the new chemical hub of India.

While the management is averse to talking about its geographic diversification plans, Dahej could well be the site for its new unit. A production unit is also being planned in the EU with a view to meeting the growing demands in EU countries. “The ultimate aim is to become a multi-product, diversified company and scale up to become a world class Indian MNC.”  For the next line of products, the company has started looking at additives in the ethanol blending segment as also helping companies adhering to Euro 5 and Bharat 6 standards.

There is a widely held belief amongst analysts that while the boom in speciality chemicals may not end soon, the margins will be under pressure. The two reasons they quote is that China may re-enter the global market in a big way and secondly, the rise in the price of raw materials will also start eating into margins. The days of supernormal profit may not last long – that is one view. However, India, as also countries in South East Asia including Japan, will continue to play a bigger role in the chemical sector.

With many companies in India also scaling up rapidly it may well be a volume game but the margins in speciality chemicals will still be better than fine chemicals. Hopefully, Indian companies like Yasho Industries will not just survive but also grow rapidly like Yasho has done over the last few years. 

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