Oriental Carbon and Chemicals Limited (OCCL) BSE Id: 506579 NSE Code: ORIENTCARB

CMP (BSE): Rs.139

CMP (NSE): Not traded in last 30 days (as per moneycontrol.com)

Industry: Chemicals

Oriental Carbon and Chemicals Limited (OCCL), is a company belonging to the Duncan JP Goenka group of companies. OCCL manufactures Insoluble Sulphur, Sulphuric Acid and Oleums. The core business of OCCL is manuacturing and sales of Insoluble Sulphur ,which is used as a vulcanizing agent in the rubber industry. In 1994, OCCL set up a unit for manufacturing of Insoluble sulfur which later emerged as the star product of the group.

(1) Insoluble Sulphur:

Insoluble Sulphur is mainly used in tyre industry. The Indian market for Insoluble Sulpur is growing more than the growth rate for the tyre industry due to increasing share of radial tyres in commercial vehicles which consume more Insoluble Sulphur. With the revival of the global economy, the auto sector has picked up significantly resulting in huge demands and huge growth in the auto companies. This has trickled down to the auto ancillary sector and hence the demand for Insoluble Sulphur is growing at a robust pace and this trend is expected to continue in the coming year as new tyre capacities are being added in India.

The consumption of insoluble sulphur in China is nearly five times that of India. This also indicates that there is an ample scope of demand increase in India. Thus the existing capacities will be diverted to cater to the domestic demand and the new capacities (11000 MTPA), being added up at the Mundra plant will cater to the international markets. With the increased domestic demand and increase in international customer / plants base the company does not see any difficulty in selling the new capacities.

OCCL’s Insoluble sulfur units are situated at Dharuhera, in the Indian State of Harayana. Insoluble sulfur manufactured in this plant is marketed as "Diamond Sulf" in India and around the world. One of OCCL's unit in Dharuhera as a designated Export Oriented Unit. The plant, through continuous innovations over the years, is counted among the best in the world. It adheres to total Quality norms and is ISO9001-2000 & EMS14001-2004 Certified. OCCL produces wide range of insoluble sulfur grades which are being widely exported to leading tyre companies around the world. In India OCCL is the undisputed leader with major market share.

(2) Sulphuric Acid and Oleums:

OCCL manufactures both Commercial Grade and Battery Grade Sulphuric Acid and Oleums. Sulphuric Acid finds its application as a dehydrating agent, catalyst, active reactant in chemical processes , solvent , and absorbent. It is used in the process industries from very dilute concentrations for pH control of saline solutions to strong fuming acids used in the dye, explosives , and pharmaceutical industries. Due to recovery in demand and normalization of the raw materials cost, the performance of the sulphuric acid has improved.

Value Addition and Combating Competition:

The demand of value added Insoluble Sulphur grades such as AS, HD grades is growing. The reasons for this are the advantage that it offers such as ease of handling and more production flexibility to the consumer. OCCL through continuous Research and Development efforts, has developed new value added grades many of which are now approved by international tyre companies. This gives an edge to OCCL against competitors from China in the international market besides helping to sustain realisation levels.

OCCL has a small equity base of just 10.31 crores. This is a big positive as the profits are divided among a smaller base and with capacity expansion and more profits, the stock of OCCL will take off exponentially. Thats why I try and go for companies with small equity base. Along with small equity, it is a low debt company with debt equity ratio standing at just 0.2. It is quoting at 1.55 times it book value. Its PE is 4.23 whereas the Industry PE is 5.71. However, in future with the additional capacity of 11000 MTPA, the sales and the earnings of the company will increase resulting in more value creation for the company. Its dividend yield comes to about 2.8% (Rs. 1.5/- dividend was paid for the year 2009-2010).

From FY 2009 to FY 2010, the EPS has increased from Rs. 7.41 to Rs. 28.61. This huge profitability was due to the stable raw material prices which resulted in good profit margins for the company. During FY 2009, the prices were very volatile and the prices of raw materials peaked resulting in low profitabilility. In FY 2010, prices were almost half of the peak prices, resulting in low cost for the company. Like FY2010, even in the current year the prices of the raw materials are stable, which means that it would prove profitable for the company.

With the global economy improving and the auto sector booming, I am very optimistic about OCCL. With the surging demand of insoluble sulphur, the additional capacity will bring in more earnings resulting in more value creation.Buying at current levels and on dips would make the investment in this stock attractive.

Happy Investing.