Fundamental research notes on Poddar Pigments

1. Jainam Share Consultants
By: Karan Agarwal
karan.agarwal@jainam.biz
29th June 2018
Re-Touch
on
Poddar Pigments
- Business: Location - Jaipur, Promoted by Mr. S. S. Poddar, Poddar Pigments (PPL) is an
ISO 9001:2008 QMS certified company and manufactures colour and additive
masterbatches for dying of the man-made fibres (MMF), various plastic applications and
engineering plastics and Compounds.
As per the company, it has the unique distinction of being the first company in India to
manufacture Masterbatches for the dope-dyeing of Polypropylene, Nylon & Polyester
Multifilament Yarn/ Fibres.
- Masterbatch is basically a solid or liquid additive used for colouring (colour masterbatch)
or imparting other properties to plastics (additive masterbatch) and man-made fibres.
In other words – Polymer granulates with a high percentage of additives, higher than in
the end use, are called masterbatch. In later production steps, those granulates are
mixed with the raw polymer for colouring or the targeted modification of certain
properties.
- Poddar Pigments manufactures colour and additive masterbatches for man-made fibres,
plastic applications and engineering plastics and Compounds.
- The company has its manufacturing facility at Jaipur and it has the capacity to
manufacture 12,000 tonnes of specialty masterbatches per annum. It started with the
capacity of 1200 MTPA in 1991.

2.
- Working with negligible debt.
- Promising industry (masterbatches for the synthetic fiber industry, based on Polyesters,
Nylons and Polypropylenes, for specialty and general purpose applications such as
automotives, carpets, home-furnishings, apparels, nonwoven fabrics, technical fibers,
etc.).
- Healthy return ratios with ROCE (5 years) at 23%, ROE 17%, ROA 20%.
- Available at cheaper valuation in comparison to its competitors
-> P/BV - 1.64, P/Sales - 0.72, P/E - 12.53, EV/EBITDA - 7.26, PEG - 1.06.
- Stagnant growth: ~ 8% CAGr growth in Sales and ~12% CAGR growth in Profit.
YoY degrowth in Sales of ~5.5% and in PAT of ~6% in FY18.
- Company is operating at near-to-full capacity for last 3 years and even though it is
financially healthy with negligible debt and positive free cash flow, it has not laid down
any plan for expansion.
- Exports are at and are expected to remain at around 10% of total sales. Although,
company is looking to penetrate into new overseas locations.
- Pressurised Operating Profit Margin.
- Big risks of no entry barriers, high competition, lack of pricing power and volatility in
raw materials price (mainly resin polymer and pigments).
- With current rise in crude price, company’s margins may take a hit and being in a
consumer driven industry, company won’t be able to pass on the burden to end users in
significant proportion.
Cost of raw materials to total sale of goods rose by ~15% in FY17Q4 (effect of rising crude
price is probably starting to be seen).
⇒ Overall Analysis:
Company operates in a very competitive environment with many private players in the
industry having larger capacity plants. Also, the fluctuating profit margins of the company
signals to its inability of passing on the fluctuating raw materials costs to the end users,
signifying that the industry is consumer driven.
Company operates at very subdued margins and near-to-full capacity and has not laid down any
expansion plans for the coming years which clearly puts a big question on its growth. Further,
rise in crude oil prices to a tremendous level will disallow the company to improve its margins
and record any significant growth in near term.
Company has no moat and given the current conditions of both company and the industry, it
seems unlikely that it will register any growth in its operations.

3. Financials