Ashish Chughs

HIDDEN

GEMS

. in search of Market Beating Stocks

July 16, 2012 Thirumalai Chemicals Ltd.

CMP Rs. 71.05 BSE Code 500412 NSE Symbol -TIRUMALCHM

We believe Thirumalai Chemicals will see a robust FY 13, if the numbers for Q1 are any indication. We believe the management is investor friendly which is evident from dividend track record of the company pre FY08 and the company we believe will be back to dividend list from the current year. We believe Thirumalai Chemicals will stage a strong rebound and will regain its lost glory. Thirumalai Chemicals Limited (TCL), started production of Phthalic Anhydride (PAN) in 1976 in Ranipet, in South India. The company has an installed capacity of 140,000 MTPA for PAN and is ranked amongst the largest producers of PAN in the country. Besides PAN where it is a leader, the company manufactures many other critical Industrial Chemicals like Maleic Anhydride, Fumaric Acid and Malic Acid and various Fine Chemicals and Derivatives. Phthalic Anhydride is an important chemical, which is widely used in the manufacture of Paints, Inks and Coatings, Polyester Resins, Plasticizers and Pigments. It is an intermediate chemical which is used in the production of PVC plastics, plasticizers, paints, dyes and polyester resins. It is an internationally traded commodity and the major raw material for producing it is auto Orthoxylene. In India, the major producers

of Phthalic anhydride are Thirumalai Chemicals, IG Petrochemicals, Mysore Petro and Asian Paints which uses PAN for captive consumption. Financials The latest financials of the company are given as under :QUARTERLY - LATEST RESULTS - Thirumalai Chemicals Ltd (Curr: Rs in Cr.) Year Ended (Mar 12) (12) 897.55 5.88 Year Ended (Mar 11) (12) 758.64 6.76

Quarter Ended (Jun 12) 297.51 2.66

Quarter Ended (Jun 11) 140.84 0.14

Quarter Ended (% Var) 111.2 1800

Year Ended

Particulars Sales Other Income Other Operating Income PBIDT Interest PBDT Depreciation PBT Tax Deferred Tax PAT
(Source : Capitaline)

(%Var) 18.3 -13

44.26 16.44 27.82 3.06 24.76 7.97 0 16.79

13.59 7.81 5.78 3.66 2.12 0.57 0 1.55

225.7 110.5 381.3 -16.4 1067.9 1298.2 983.2

71.99 52.37 19.62 13.81 5.81 1.02 0 4.79

70.6 30.85 39.75 13.39 26.36 7.81 0 18.55

2 69.8 -50.6 3.1 -78 -86.9 -74.2

Latest Data As On 13-Jul-2012 Latest Equity(Subscribed) Latest Reserve Latest Reserve (cons.) Latest EPS -Unit Curr. Latest EPS (cons.) -Unit Curr. Latest Bookvalue -Unit Curr. Latest Bookvalue (cons.) -Unit Curr. Face Value Book Value (BS) - Unit Curr. Stock Exchange Latest Market Price--Unit Curr. Latest P/E Ratio Latest P/E Ratio -cons Latest P/BV Latest P/BV - cons 52 Week High -Unit Curr. 52 Week High-Date BSE 71.05 15.21 79.09 0.62 0.47 103 15-Jul11

10.24 106.29 143.87 4.67 0.9 113.8 150.5 10 113.8 NSE 71.1 15.22 79 0.62 0.47 101 20-Jul11

All Time High -Unit Curr. All Time High-Date 52 Week Low -Unit Curr. 52 Week Low-Date All Time Low -Unit Curr. All Time Low-Date Market Capitalisation Dividend Yield -% Dividend Yield -% - cons Price Date
(Source : Capitaline)

309.9 03-Jan08 42 30-Mar12 20.75 17-Sep01 72.76 0 0 13-Jul12

308.7 02-Jan08 40.05 27-Mar12 20 18-Sep01 72.81 0 0 13-Jul12

Stock Price Chart

Conclusion Thirumalai Chemicals is the largest manufacturer of PAN in the country and has been in this business for more than 35 years. The company was performing extremely well till 2008, generating healthy profits and paying generous dividends (as high as 100% in some years) to the shareholders. Thereafter, the company started making losses for one reason or another worldwide recessionary conditions post 2008, losses on account of Foreign Exchange Hedging, losses from the plant that the company established in Malaysia, coupled with dumping of cheaper products from Korea, Taiwan, Iran and Israel all led to the facing difficult times for the company in the last 3 years.

The company has strong research capabilities and over the past few years has been transforming the Phthalic Anhydride business to globally competitive size and profitability. Due to high capital costs for setting up a new plant, there are no major greenfield plants commissioned in the past several years. The company has a high Sales to Equity ratio (it infact has small equity capital of Rs.10.24 crores) , a slight improvement in margins can result in a significant improvement in its EPS. The fortunes of the company have seen significant change after imposition of safeguard duty by the government of India on imports of PAN. Also, with the decline in Indian rupee in recent times against USD and other currencies, imports have been largely restricted and exports have become lucrative, thereby benefitting the domestic manufacturers. We would however like to caution that Thirumalai Chemicals operates in an industry which is cyclical and to that extent entry and exit point in the stock is extremely critical. The company has started doing well from the past 2 quarters and for the quarter ended June 12, has posted extremely encouraging numbers with Sales Revenues more than doubling to roughly Rs.300 crores and PAT growing over ten fold from Rs.1.55 crore to Rs.16.8 crores. We believe the management is investor friendly which is evident from dividend track record of the company pre FY08 and the company we believe will be back to dividend list from the current year. We believe Thirumalai Chemicals will stage a strong rebound and will regain its lost glory.

Ashish Chugh is an equity analyst and investment consultant based at New Delhi, INDIA. At the time of writing this article, he, his firm and dependent family members have a position in the stocks mentioned above. The author, his firm or any of his dependent family members may make purchases or sale of the securities mentioned in the report while the report is in circulation. The author invites readers to send him email and welcomes comments, feedback & queries at nexgenfin@yahoo.com. This report has been prepared solely for information purposes and the information contained herein may not be deemed to be an investment advice. Such information is impersonal and not tailored to the investment needs of any specific person. The information contained herein is not a complete analysis of every material fact representing any company, industry or security. The views expressed may change. While the information contained herein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Investors are advised to satisfy themselves before making any investments and should consult with and rely upon their own advisors whether and how to use such information in making any investment decision. Neither the author nor his firm accepts any liability arising out of use of the above information/ article.