Transpek Industry - Annual Report Summary 2022
An Intelsense Knowledge Series - we regularly study interesting businesses. We keep profiling them. The idea is to keep learning and expanding our knowledge base.
Business Overview
Transpek Industries specialises in the production of inorganic and specialty chemicals. It was established in the year 1965 and is based primarily in Gujarat.
Their products cater to a wide range of industries including Textiles, Agrochemicals, Pharma, Advanced Polymers, Paper etc. Some of the leading products manufactured by the company include Sulphuric Acid, Sodium Sulphate, Sodium Bisulfide, Sodium Metabisulphite and Acid Chlorides.
The company is the leading player in Acid Chlorides product production in India and is aiming to introduce more products in the upcoming years. Acid chlorides are used in the production of plastics and polymers whose market is expected to grow as a result of more spending on defence, construction and infrastructure projects.
The company’s focus has reportedly been on acquiring new customers and expanding the customer and geographic market dependency, especially when larger business organisations and established economies struggle to maintain financial stability. Furthermore, it is adding more acid chlorides to its portfolio of products. It is also focusing on commercialising other products to reduce the dependency on Acid chlorides.
The company’s revenue can be broken down in the following ways:
Based on geographic concentration:
North America – 61%
India – 24%
Europe – 11%
Rest of the world – 4%.
The split as shown above exposes most of the company’s transactions to foreign exchange risk, namely transaction risk.
Based on products:
Polymer – 60%
Pharma – 13%
Specialty Chemicals – 13%
Others – 14%
Industry Analysis
Specialty Chemicals:
The Indian Specialty chemicals market is expected to grow at a CAGR of more than 12% between the years 2020 and 2025. Demand is mostly expected from the automobile sector, real estate, clothing, cosmetics etc. They represent 22% of the Indian chemical market and are valued at around USD 35 billion. The constant demand from the core and innovative sectors of the economy pushes both organic and inorganic growth for the companies involved. Furthermore, exports of specialty chemicals are on the rise.
Plastics and Polymer Industry:
The value of the plastics and polymer industry in India was around USD 3 Billion in 2018 and was expected to grow at a CAGR of 10% - 12% till 2025. It employs more than 4 million people directly in the country. Not to mention, India also ranks in the top three positions in plastic and polymer consumption.
Reinforced Plastics are increasingly becoming an effective alternative to metals. Thus, the construction, automobile, defence and medical industries are demanding and expected to demand more advanced polymers and plastics in the coming years. The change in trend from importing such polymer products to manufacturing such products domestically, especially after the Chinese supply chain meltdown has given a lot of opportunities to local manufacturers.
Acid Chlorides, which is the primary product of the company is used as reactive intermediates or as building blocks for the synthesis of various polymers.
Pharmaceuticals:
India is the largest provider of generic drugs globally and is known for its affordable vaccines and generic medications. The Indian Pharmaceutical industry is currently ranked third in pharmaceutical production by volume after evolving into a thriving industry growing at a CAGR of 9.4% over the past nine years.
Indian pharmaceutical sector supplies over 50% of global demand for various vaccines, 40% of generic demand in the US and 25% of all medicine in the UK.
According to a recent EY FICCI report, as there has been a growing consensus over providing new innovative therapies to patients, the Indian pharmaceutical market is estimated to touch US$ 130 billion in value by the end of 2030. Meanwhile, the global market size of pharmaceutical products is estimated to cross over the US$ 1 trillion mark in 2023.
Chlorinated products produced by the company are used as intermediaries in the synthesis of various medicines. The common ones are focused on analgesics and anti-inflammatory drugs. They are also used as solvents and for extraction and purification purposes, for example, chloroform for curing malaria. They are also used as preservatives and Anaesthetics in the medical industry.
Management:
Chairman: Ashwin C. Shroff
Managing Director: Bimol V. Mehta.
The following issues were identified through the Annual report 2022 and external sources.
In the aftermath of the pandemic, the new project undertaken through a wholly owned subsidiary, Transpek Creative Chemicals Pvt Ltd, with investments of 120 Cr, has been dropped out. (Source: Screener)
The company has ongoing legal disputes relating to taxes with the government. There is considerable potential for it resulting in a significant economic outflow from the business. (Source: Internal Auditor’s Report – Key audit matters)
Business Analysis:
Transpek Industries is the leading manufacturer of Acid Chlorides in India which is used as an intermediary or building block in a variety of sectors/products. However, the jump in revenue of more than 70% is unlikely to be sustained in the long run although the market is growing at a pace of 11% on average.
The company’s revenue is mainly from North America and there’s a huge foreign exchange risk surrounding the company. The company has reported a loss of 143 Lakhs in foreign currency transactions in the year 2022 which is 0.23% of the total revenue reported. Although the figure is insignificant, this reflects the company’s risk management and efficiency. The main risk of foreign exchange loss can further be seen in trade receivables. The reported trade receivables of the company from exports is Rs. 8960.28 Lakhs however, only 4998.35 lakhs worth of receivables are hedged appropriately.
The company also faces the risk of buyer’s influence and impact on profitability. Major customers form a significant part of the total revenue and in view of this, the management is focusing more on acquiring new customers, balancing the foreign currency and exchange rate risks etc.
Segmental response of the company:
Polymer:
Manufacturing more acid chlorides and bringing new products into the same segments. The company is also producing non-chlorine supplements for the industry as well.
Pharma:
The after-pandemic drop in the pharma sector did not affect the company’s pharma business because none of its products were used in the covid vaccine production. Therefore, the business has maintained a steady outlook. One issue is the rising cost of raw materials in the pharma industry which is putting pressure on the margins. The company is adding more products in this industry as well.
Agrochemicals:
Agrochemicals is a very price-sensitive market which puts huge pressure on the operating margins of the business segment. The company is not much involved in the sector and is hoping to remain the same way especially when the prices of raw materials are on the rise.
The future of the company appears to be dependent on the growth and stability of the pharma and plastics and polymer industry, especially the demand for various types of Acid Chlorides.
Learn more about our services
DISCLAIMER:
Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.
SEBI Registered Research Analyst - Registration Number: INH300006607
Registration granted by SEBI and certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.