Clariant: Strongly facing odds - Views on News from Equitymaster

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Clariant: Strongly facing odds

Aug 17, 2001

Clariant (India) Limited, (CIL), is a 51% subsidiary of the Swiss multinational Clariant AG. The company manufactures, develops and markets dyes, pigments, additives, masterbatches and specialty chemicals for textiles, leather, paper, plastics, paints and inks. The company has six major divisions-process and performance, pigments & additives, masterbatches, surfactants, fine chemicals and cellulose. Clariant (India) is one of the three global sourcing centers for Clariant Worldwide.

(Rs m)FY00FY01% change
Sales2,5282,80210.8%
Other Income516220.2%
Expenditure2,3302,57910.7%
Operating Profit (EBDIT)19822312.7%
Operating Profit Margin (%)7.8%8.0%
Interest (net)-20-9-55.0%
Depreciation263015.8%
Profit before Tax2432648.4%
Tax8910113.5%
Profit after Tax/(Loss)1541635.4%
Net profit margin (%)6.1%5.8%
No. of Shares (eoy) (m)11.911.9
Diluted Earnings per share*13.013.7
P/E (at current price)6.46.1

CIL managed a sales growth of 10.8% in FY01 despite poor market conditions. This growth was the result of the company's focus on new products, and an increase in the ratio of new products to sales from 14% in FY99 to 18% in FY01. CIL has entered into many new areas and has launched 100 new products during FY01. The most remarkable achievement of the company seems to be its stable operating margins, inspite of considerable increase in raw material costs during the year.

Exports contributed around 29% of company's revenues with textile dyes accounting for majority of export revenues. However, the export market is extremely competitive with price pressures especially from China. However, in future, the company's exports are likely to show decent growth as it forms part of three main sourcing bases for its parent apart from China and Japan. To sustain growth rate and maintain its strong presence in this industry, CIL would focus on the textile chemicals, leather and masterbatches businesses. Masterbatches is one of the fastest and most rewarding businesses for the company. With new manufacturing facility for masterbatches coming in place, operating margins could witness a slight improvement in the current year.

At the current market price of Rs 83, the stock is trading at a P/e 6 times its FY01 earnings. The company has declared a dividend of Rs 5 per share and hence the dividend yield at the current market price works out to be 6%. Though Clariant (India) seems to be fighting against all odds strongly, the outlook for the speciality chemicals industry is not expected to be encouraging in the near term. Majority of the speciality chemicals is consumed by the pharma industry. Minus the pharma industry demand, the speciality chemical industry continues to face poor demand growth. Overall growth in the segment is expected to be around 4-5%. Though Clariant India remains the leader in the industry and is expected to outperform the industry, the growth rates are expected to be unglamorous. Again the exports market is expected to remain sluggish with substantial capacity built up in China and lack of demand from European markets.

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