Beaten Down Smallcap Stock Joins the Green Hydrogen Race

The green hydrogen theme has emerged as a catalytic force in the global efforts to decarbonize our planet.

Often referred to as the 'fuel of the future', green hydrogen holds transformative potential, particularly in addressing the emission challenges of hard-to-abate sectors like steel, cement, etc.

Amid the ongoing global shift, companies across various sectors are scrambling to carve their niche in this rapidly evolving space.

Adding to this trend, a speciality chemical company, Sadhana Nitro Chem, has recently declared its intention to venture into the green hydrogen space.

About Sadhana Nitro Chem

Sadhana Nitro Chem is an India-based company engaged in producing intermediate speciality chemicals.

The company is primarily engaged in the manufacturing of chemical intermediates, heavy organic chemicals, and performance chemicals.

It manufactures downstream derivatives of nitrobenzene and other intermediates for various applications in aerospace, pharma and agro, optical brightening, and more.

The company provides immediate and assured service to its European clientele through its 100% subsidiary Anuchem, in Antwerp, Belgium.

In 2023 so far, shares of the company have lost 14%.

Green Hydrogen Hub

On 4 December 2023, the company revealed plans to establish a state-of-the-art green hydrogen facility tailored for captive usage.

The envisioned facility, set to harness solar and wind energy, will boast a collective capacity of 15 to 20 MW for self-consumption once operational.

For setting this up, the board has approved a rights issue targeting a fundraising of up to Rs 500 million (m). Priced at Rs 121 per share with a premium of Rs 120, the rights issue aims to amass funds totalling Rs 499.5 m.

These financial resources will predominantly be channelled towards the acquisition of a 126-acre plot dedicated to developing a solar power facility and a wind energy installation.

Sustainable Energy Integration

The allocated land will serve as the cornerstone for Sadhna Nitro's sustainable energy expansion, facilitating the development of both a solar power facility and a wind energy installation.

These renewable energy sources will power the green hydrogen production process through water electrolysis.

The company has also said that surplus green hydrogen produced will be made available for sale to external entities.

Government's Push

India has thrown its weight behind green hydrogen, unveiling a US$ 2 billion (Rs 160 billion) scheme to propel its production and position the country as a prominent exporter.

Companies, big and small, are deploying massive amount to spearhead this revolution.

Some of the salient features of government's green hydrogen scheme include:

• Incentivising Producers: The scheme offers producers incentives of at least 10% of their costs, fostering a transition to renewable energy and reducing carbon emissions.
• Cost Reduction Goals: To reduce manufacturing costs from Rs 300 to Rs 30 per kg, the government is offering an incentive of Rs 30 per kg for the production of green hydrogen.
• Support for Essential Components: The program takes care of funding for the manufacturing of electrolysers.
• Bidding Process Initiation: The government plans to begin the bidding process soon, with hopes of supporting the development of 3.6 million tonnes of hydrogen production capacity over the next three years.
• Staged Auctions: Auctions will be conducted in stages for both green hydrogen supply and electrolysers, serving the dual purpose of gaining market insights and driving technological advancements while reducing costs.

Ambitious Future Plan

Sadhana Nitro Chem aims to expand internationally, particularly in the Asia-Pacific region, to tap into new markets and customers.

Additionally, the company is focusing on new product development to meet the evolving needs of its customers in the green hydrogen industry.

Sadhana Nitro Chem is likely to seek partnerships with other companies and research institutions to accelerate its green hydrogen development.

A Close Look at Financials

For the September 2023 quarter, the company reported a 15% YoY rise in its revenue to Rs 420.1 m. This growth can be primarily attributed to the steady increase in global demand for its products.

Meanwhile, the net profit for the same period came in at Rs 25.7 m against a net loss of Rs 3.7 m a year back.

For FY23, the company recorded total revenue of Rs 1.4 bn. Between FY21 and FY23, the company has posted a CAGR growth of 10.3% in its revenue.

The profit however has declined from Rs 159 m in FY21 to Rs 32 m in FY23. This can be attributed to increase in finance costs.

Sadhana Nitro Chem Financial Snapshot (2019-23)

Particulars	31-Mar-21	31-Mar-22	31-Mar-23
Total Revenue (Rs in bn)	1	1.3	1.5
Growth (%)	-	30	15.4
Net profit (Rs in m)	159	62	32
Net profit margin (%)	15.5	4.7	2.2

Source: Equitymaster

Going forward, the company aims to increase its profit by optimising costs.

Conclusion

Sadhana Nitro Chem is poised to benefit from the continuous demand for specialized chemical solutions across a myriad of industries, ranging from healthcare to manufacturing and agriculture.

Further, India strives to achieve 50% of its electricity capacity from non-fossil fuel sources by 2030 and reach net-zero carbon emissions by 2070.

The scheme reflects the government's commitment to clean energy and its ambition to establish India as a significant player in the green hydrogen sector.

This ambition will further support the company's green hydrogen plan.

However, as always, it's essential to conduct thorough research and consider your own investment goals and risk tolerance before making any financial decisions.

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