The document discusses how specialty chemicals company Sadhan has outperformed the market. It summarizes Sadhan's business model, financial performance, and valuation. Sadhan started in 1979 and now generates around 70% of its revenue from pharmaceutical and agrochemical products. It has consistently grown sales by 17% annually and earnings. The market has highly valued Sadhan due to its growth trajectory, with its price-earnings ratio expanding in recent years. However, further rerating of the PE ratio is unlikely, so future outperformance will depend on continuing strong earnings growth.

1. Which Sector has outperformed the Market ??
Specialty
chemicals

2. • China Factor (Stringent environment norms,
Clear Sky Policy, Covid 19)
• Global opportunity (Export potential due to
low cost labor)
• Domestic Opportunity ( Import substitution,
Atmnirbhar Bharat, Make In India, Anti
Dumping Duty)
• Shift from Unorganized to Organized helping
Listed players
How Specialty Chemicals have outperformed the
Market ??
Sadhan

3. • China Factor (Stringent environment
norms, Clear Sky Policy, Covid 19)
How Specialty Chemicals have outperformed the
Market ??
Sadhan

4. How Specialty Chemicals have outperformed the
Market ??
Sadhan

5. Sadhan

6. Business Model
Financial Analysis
Valuation
Sadhan

7. • Started in 1979 with Aliphatic
Amine in technical collaboration
with a US firm.
• Later on, they started making
Derivatives
• Then they started making Specialty
Chemicals
Aliphatic
Amine
50%
Derivative
25%
Speciality
Chemicals
25%
History
Sadhan

8. • Managing Director is Yogesh Kothari
• Chemical Engineer from U.D.C.T., Mumbai,
• Master of Management Science and Master
of Science (Chemical Engineering) from
University of Massachusetts, U.S.A.
Management
Sadhan

9. Management
• Managing Director is Yogesh Kothari
• Chemical Engineer from U.D.C.T., Mumbai,
• Master of Management Science and Master
of Science (Chemical Engineering) from
University of Massachusetts, U.S.A.
• Promoters own 74% of shareholding
• No share pledge
Sadhan

10. Business Model Raw material
Methanol
Ammonia
Denatured
Ethyl
Alcohol
Imported from Saudi Arabia, Oman, Qatar etc,
especially post the US sanctions on Iran, which is one
of the major manufacturers of methanol in the world.
Methanol price are linked to crude prices
Difficult to transport, it is largely sourced indigenously.
Mainly sourced from sugar factories and distilleries
besides being imported from the US and Latin
American countries.
Sadhan

11. Business Model Revenue Mix
Pharma +
Agro
=~70%
Sadhan

12. Product Aliphatic
Amine
Methyl
Amine
Ethyl
Amine
Indian market size:85,000 ton
AACL have 30,000 ton capacity (40%
market Share). Others are Balaji & RCF
AACL is furtherenhancing capacity by
15,000 ton over next 2 years
Methyl amine is dangerous & difficult
to carry so Indian demand is captive
Margin are low
Sadhan

13. Product Aliphatic
Amine
Ethyl
Amine
Indian market size:21,000 ton
AACL is market leader with 15,000
ton capacity. Others is Balaji
Ethyl amine is dangerous & difficult to
transport so Indian demand is mostly
captive with limited 10-15% import
Sadhan

14. Product Derivative
DMA HCL
AACL have 12,000 ton capacity.
AACL+ Balaji controls 60-70% market.
Competitive market
Not dangerous & easy to carry
Used in Ranitidine which is used in
treatment of Peptic & Gastric ulcer
Used in Metformin which is used in
Type 2 Diabetes treatment
Sadhan

15. Product Specialty
Chemical
Acetonitrile
Indian market size:17,000 ton
AACL is market leader with 10,000 ton capacity (40%
Market share)
2 methods to make Acetonitrile :
(1) From Acrylonitrile (Auto industry )
(2) From Ascetic Acid+ Ammonia (AACL)
The increased pharma demand has widened margins for
the product. Prices have increased by 3X due to shortage
of supply
Export market and increase in domestic demand would be
met by the expanded capacity of 15,000 ton
Sadhan

16. 236
288
366
446 476 484 501
616
846
993 972
Growth Rate:17%
Sales
Sadhan

17. 13%
15% 16%
19% 18% 19% 19% 19% 19%
26%
28%
EBITDA
Margin (%)
Sadhan

18. 2016: 0.54
2020: 0.16
Debt:
Equity
Sadhan

19. 24
36
22
46
61
101
63
102
144
188
1 2 3 4 5 6 7 8 9 10
Cash flow from
Operation (CFO)
Sadhan

20. 0.78
0.84
0.39
0.54
0.70
1.11
0.67
0.87 0.88
0.73
1 2 3 4 5 6 7 8 9 10
CFO
EBITDA
0.80
Is Profit generated is real
i.e. Cash?
Sadhan

21. 2012 2013 2014 2015 2016 2017 2018 2019 2020
1.Net Fixed Asset
Turnover 2.6 2.9 3.2 3.1 2.9 2.5 2.1 2.3 2.5
2.Receivables days 68 68 68 72 71 68 65 60 58
3.Inventory
Turnover 6 6 6 6 7 6 6 9 10
High is
better
Low is
better
High is
better
Cash Conversion
Sadhan

22. 12.2%
16.9%
19.3%
26.4%
24.9% 25.9%
22.4% 21.7%
27.3%
43.3%
1 2 3 4 5 6 7 8 9 10
Return on Capital
Employed
15%
Sadhan

23. -
50
100
150
200
250
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Profit (in Rs cr)
Valuation
Stock price
Sadhan

24. Growth Rate 10Yr 7Yr 5Yr 3Yr TTM
Sales Growth 17% 15% 16% 26% -2%
OPM 20% 20% 21% 21% 28%
PAT Growth 40% 37% 37% 62% 8%
Avg. PE 12.1 13.5 16.0 17.2 29.2
ROCE 24% 27% 26% 28%
ROCE+ PAT
Growth 64% 64% 63% 91%
PE Rerating
Increasing
Consistently Growing
Consistently Growing
Consistently Growing
Why Market have valued AACL so high?
Sadhan

25. Why Market have valued AACL so high?
• Growth Stock
• PE Expansion (Rerating) due to moving to next orbit (Rs 100
cr + Club)
Sadhan

26. Will it sustain?
• Next PE Rerating seems unlikely
• Earning growth will lead to price growth, so watching the
earning growth quarterly is recommended
• There is huge sectoral tailwind supporting the buoyant price of
its key product (Acetonitrile price is key monitorable)
• Institution holding (MF ) is still low at 2%, there is room for
institution to increase holding (Aarti Industries , Atul Ltd had
similar trajectory )
Sadhan

27. What you should do?
• Stock is fairly valued
• Stock have great potential so people with conviction in
Specialty Chemical growth story should invest
• Invest at Right time, Right price
• Accumulate at drop
Sadhan