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CMP: INR 24 | Market Cap: INR 2,352 Mn

Forward Guidance

* For FY26, the company is looking at a topline run of 20% to 30% growth.

* The focus for FY26 is on the bottom line, which is expected to see a significant jump, largely due to the monetisation of byproducts.

* The expected margin for FY26 is in the range of 15% to 18% or possibly 15% to 20%. There is a contingency that margins could remain around 15-16% or even higher in FY27 if the global scenario remains stable.

* Annual savings from the cogen plant are expected to be about INR 40 Mn to INR 50 Mn per year.

* Current plant capacity utilisation at the existing facility is 60%. Post-capex, pigment capacity utilisation is expected to increase to 70% to 75%. Specifically, the capacity utilisation of existing products (CPC -> Alpha/Beta) is expected to go up from 60% to 75-80%, meaning around 750 tons will be used out of a total capacity of 1,000 tons.

* Expected monthly capacities after Q1, with new production, are 200 tons for Alpha (up from 150 tons) and 250 tons for Beta (up from 200 tons).

* The byproduct fertiliser plant is targeted to reach a capacity of 6,000 tons per annum once completely stabilised. The goal is to reach 80% of this capacity by Q2.

Forward Looking Statements

* The cogen plant is expected to be operational next month.

* Raw material for the new plant is expected to stabilise by the second quarter of this year.

* The power plant (cogen plant) is expected to start in the coming quarter.

* The capital expenditure (capex) has been done to efficiently utilise waste products, which the company is going to monetise in the near future.

* The entire capex run is aimed at efficiently managing costs and monetising byproducts. The capex is also intended to achieve production at the right cost for long-term consistency in production capacities.

* The new plant (likely referring to the cogen and byproduct/fertiliser projects) will enable the running of the plant more efficiently 24/7, addressing potential disruptions in water and electricity supply.

* The waste product monetisation plant (part of the capex) is planned to produce 6,000 tons of certain high-value fertilisers per annum once production is stabilised.

* The byproduct fertiliser plant is targeted to be absolutely stabilised by Q2. The ramp-up will start in Q1 and stabilisation will be by Q2.

* The company aims to achieve an integrated ecosystem, where increased Alpha and Beta production is supported by the monetisation of the generated waste, killing two birds with one stone.

* There are plans to reduce borrowings to negligible levels in the next one to one and a half years. The company aims to become a zero-debt company.

* No significant capex is expected for the next year beyond routine maintenance capex.

* Initial batches from the new plant have started and are promising, with commercialisation not seen as an issue as these products are relatively easier to commercialise compared to the CPC to downstream pigment transformation previously undertaken.

* Numbers from the new plant are targeted for Q2.

Key Financials

* This CWIP of INR 560 Mn includes INR 250 Mn for the boiler and cogen plant, and INR 200 Mn for ‘the’ (likely the byproduct/fertiliser plant mentioned later), with the rest for balancing equipment.

* Current monthly production capacities are approximately 600 tons for CPC, 150 tons for Alpha, and 200 tons for Beta. The total capacity is stated as 1,000 tons.

* The value (price) of products per kilogram in the market is around 300-350 rupees for CPC blue crude, 500-550 rupees for Alpha, and 400-420 rupees for Beta.

* The high-value fertilisers from waste monetisation are valued at anywhere between 80 rupees to 110 rupees per kilo. The input cost for producing this fertiliser is described as negligible, suggesting the topline from this product would largely flow to the bottom line.

* Long-term borrowing is about INR 400 Mn, used only for capex.

Others

* The company manufactures blue and green pigments which are used in end-user industries such as printing inks, paints, plastics, rubber master batches, and textiles.

* India has a monopoly in this specific chemistry globally, manufacturing about 80% of the pigment for the entire world, compared to China which does about 20%.

* Growth in all major sectors in India is about 4-5%, while world growth is about 1-1.5% for this chemistry.

* Raw materials are primarily oil downstream products, with almost 90% sourced in-house and mostly from India (e.g., phthalo anhydride, copper chloride).

* The enhancement in margins, increasing from 4-5% to 9%, is primarily due to the product mix change from being a CPC crude manufacturer to becoming a pigment manufacturer (downstream product), which has higher margins. This product change started being stabilised at current volumes from last year.

* The company is achieving an integrated ecosystem by manufacturing CPC blue, additants, and pigment in one facility. The waste generated is also monetised using the capex done.

* The integrated facility allows the company to give a better product, have more control over quality, and offer an aggressive pricing structure.

* The company’s market share in India is anywhere between 12% to 15%.

* Nearest competitors with similar capacity in India are Asahi and Make Money Organics. The top three or four players are stated to be among the largest, with capacities being similar or almost equal. These Indian competitors are unlisted.

* Pricing in India generally follows a cost-plus model due to the significant production volumes. Raw material fluctuations are passed on to customers via price with a lag time of about one and a half months.

* Customer contracts are typically monthly. The price is fixed in the monthly contract with no price escalation clause within the month.

* With the increased internal consumption of CPC blue crude for producing Alpha and Beta, the company will become the biggest customer of its own product, using about 75% internally.

* The company is the first player to use the byproducts generated in its process to create a fertiliser plant, utilising proprietary in-house technology. This waste monetisation is a competitive advantage, especially for Alpha production, where waste generation is a challenge for others.

* Kesar Petro is promoted by Shares & Securities. Shares & Securities previously operated in the blue segment but consolidated its business into Kesar Petro (which it bought in 2008) around 2014. Shares & Securities is also listed but is not currently doing revenue; Kesar Petro books the entire business.

* Almost 80% of the company’s product is exported, with about 20% to 25% being direct exports and the rest via merchant exporters.

Arihant Capital Markets Ltd