Print Page | Close Window

Asahi Songown Colors

Printed From: The Equity Desk
Category: Investment Ideas - Creating winning portfolios!
Forum Name: Stock Synopsis
Forum Discription: A bried discussion of companies on very specific matters. Normally this is the prelude for further research as always members would be discussing quality companies with good management only
URL: http://www.theequitydesk.com/forum/forum_posts.asp?TID=1622
Printed Date: 20/Apr/2025 at 8:18am


Topic: Asahi Songown Colors
Posted By: sajanvm
Subject: Asahi Songown Colors
Date Posted: 22/Feb/2008 at 11:06pm

Asahi Songwon Colors (IPO at 95 during 2007). CMP 45. Market Cap 50 Cr. EV 75 Cr

 

Its an unglamorous business, but then I would think that at a price, every business becomes a buy. Here’s my outline:

 

Asahi mainly manufacturers CPC Blue Crude which is an ingredient that goes into printing inks, paints , plastics etc. Their main customers are DIC of Japan (largest printing ink mfr in the world) and Clariant Korea. With these 2 customers they have a toll manufacturing arrangement (cost plus), hence RM risks are mitigated.

 

Industry Dynamics (taken from their RHP):

 

Structural change happening with capacities shutting down in the developed world due to environmental concerns and high labour costs. Much of the capacity in the developed world is expected to shut down over the next few years. Almost 80% of production is expected from China & India. There might be supply constraints over the next few years as this rejig happens. Good time for the manufacturers !

 

Worldwide demand for CPC Blue Crude was 112,000 tonnes in 2005. Expected supply worldwide (manufacturing capacity)in 2006-07 was 102,000 tonnes. Demand for CPC Blue Crude is expected to grow at a steady pace since it’s a key ingredient in paints, lubricants, plastics etc.

 

Main customers are key stake holders:

DIC of Japan holds 7.05% stake bought at Rs 122

Clariant Korea holds 5.86% (not sure what price they bought at)

 

Projections:

Mgmt had projected a 500 Cr turnover with OPM of 18% by FY 10. This would mean operating profits of 90 Cr by FY 10 and an EPS of 50. Compare that with current EV of 75 Cr and CMP of 45.

If mgmt achieves 50% projections, you are still looking at a steal.

 

Risks:

 

In 2006, 56% of supply was to 3 largest customers. Clariant Korea itself was 26%. The toll manufacturing agreement with Clariant was expected to expire Dec 2007. I did read that that this was extended, but have been unable to confirm. However, stake owned by them lends some comfort .

 

Is the expansion project on schedule ?

 

Will the global slowdown affect supply demand dynamics which look favourable right now ?

 

Disclosure: I own the stock.

 

 

 



-------------
Sajan


Replies:
Posted By: Janak.merchant1
Date Posted: 23/Feb/2008 at 8:16pm
Hi Sajanvm,
 
Can u pl tell us something about the risk involved with this sector and co?
 
Do you feel they can make sales of Rs 500 cr in line with their projections?
 
I have my doubts that they can do OPM of 18%. If they r able to then in that case it's a clear cut bargain.
 
Your views pl.
 
Best wishes
 
 
Originally posted by sajanvm

Asahi Songwon Colors (IPO at 95 during 2007). CMP 45. Market Cap 50 Cr. EV 75 Cr

 

Its an unglamorous business, but then I would think that at a price, every business becomes a buy. Here’s my outline:

 

Asahi mainly manufacturers CPC Blue Crude which is an ingredient that goes into printing inks, paints , plastics etc. Their main customers are DIC of Japan (largest printing ink mfr in the world) and Clariant Korea. With these 2 customers they have a toll manufacturing arrangement (cost plus), hence RM risks are mitigated.

 

Industry Dynamics (taken from their RHP):

 

Structural change happening with capacities shutting down in the developed world due to environmental concerns and high labour costs. Much of the capacity in the developed world is expected to shut down over the next few years. Almost 80% of production is expected from China & India. There might be supply constraints over the next few years as this rejig happens. Good time for the manufacturers !

 

Worldwide demand for CPC Blue Crude was 112,000 tonnes in 2005. Expected supply worldwide (manufacturing capacity)in 2006-07 was 102,000 tonnes. Demand for CPC Blue Crude is expected to grow at a steady pace since it’s a key ingredient in paints, lubricants, plastics etc.

 

Main customers are key stake holders:

DIC of Japan holds 7.05% stake bought at Rs 122

Clariant Korea holds 5.86% (not sure what price they bought at)

 

Projections:

Mgmt had projected a 500 Cr turnover with OPM of 18% by FY 10. This would mean operating profits of 90 Cr by FY 10 and an EPS of 50. Compare that with current EV of 75 Cr and CMP of 45.

If mgmt achieves 50% projections, you are still looking at a steal.

 

Risks:

 

In 2006, 56% of supply was to 3 largest customers. Clariant Korea itself was 26%. The toll manufacturing agreement with Clariant was expected to expire Dec 2007. I did read that that this was extended, but have been unable to confirm. However, stake owned by them lends some comfort .

 

Is the expansion project on schedule ?

 

Will the global slowdown affect supply demand dynamics which look favourable right now ?

 

Disclosure: I own the stock.

 

 

 



-------------
I love my money, not my opinion. So i am ready and willing to change my opinion for the sake of protecting my money.

Posted By: sajanvm
Date Posted: 23/Feb/2008 at 7:43am
Janak
 
500 Cr is the projection made by mgmt after IPO. I have assumed that they can do 50% of projection ie 250 Cr.
 
Please see their last 2 qtr results: OPM in 18% in Sep qtr and 21% on Dec qtr.
 
If they can do 250 Cr at 18%, it will mean 40 Cr op profits . Current EV is 75 Cr
If they can do 250 Cr at 12%, it will mean 30 Cr op profits. Still cheap.
 
Thats why it seemed  a bargain to me.
 
Risks are:
Customer concentration - which can lead to customer having high bargaining power
RM price risks unless majority of sales are on cost plus basis (i understand that their 2 main customers have a cost plus agreement with them)
Delays in capacity expansion
Capacities coming up in China
Supply demand dynamics being altered in case of global slowdown.
 
I would welcome your thoughts as well.


-------------
Sajan

Posted By: Vivek Sukhani
Date Posted: 23/Feb/2008 at 8:34am
Hi Sajanvm,
 
can you help me locate its current book value, its current equity structure, its debt structure.
 
Regards,
 
Vivek

Posted By: sajanvm
Date Posted: 23/Feb/2008 at 8:55am
Vivek
Since this is first year after their IPO, no annual report is available as of yet. We'll have to wait for this FY to end.
 
If you want to look at their prospectus, its available on their website www.asahisongwon.com
 
Rgds
Sajan


-------------
Sajan

Posted By: Vivek Sukhani
Date Posted: 23/Feb/2008 at 9:00am
Can you help me with its issue details..... how many shares were offered , at what price, and whats the post paid up equity.
 
Regards,
 
Vivek.
 
P.S.-Had a look at its result figures....appears quite a bargain. Dad has a decent idea about DIC india Limited. Hence will push him more to get more tit-bits on this mini gem.

Posted By: Vivek Sukhani
Date Posted: 23/Feb/2008 at 9:12am
Hi Sajanvm,
 
Why there was a decline in reserves between june quarter of 2007 and september quarter of 2007( as per http://www.bseindia.com/qresann/results.asp?scripcd=532853&scripname=Asahi%20Songwon%20Colors%20Ltd&type=56&quarter=DQ2007-2008&ResType=&checkcons= - this ).

Posted By: sajanvm
Date Posted: 23/Feb/2008 at 10:29am
Vivek
Total paid up capital post IPO 12.2 crore
 
IPO details:
Pre IPO placement 865,200 shares @ 122 to DIC amounting to 10.55 cr
IPO 37,22,000 shares @90 amounting to 33.3 Cr
 
Rgds


-------------
Sajan

Posted By: Janak.merchant1
Date Posted: 23/Feb/2008 at 11:22am
Originally posted by sajanvm

Janak
 
500 Cr is the projection made by mgmt after IPO. I have assumed that they can do 50% of projection ie 250 Cr.
 
Please see their last 2 qtr results: OPM in 18% in Sep qtr and 21% on Dec qtr.
 
If they can do 250 Cr at 18%, it will mean 40 Cr op profits . Current EV is 75 Cr
If they can do 250 Cr at 12%, it will mean 30 Cr op profits. Still cheap.
 
Thats why it seemed  a bargain to me.
 
Risks are:
Customer concentration - which can lead to customer having high bargaining power
RM price risks unless majority of sales are on cost plus basis (i understand that their 2 main customers have a cost plus agreement with them)
Delays in capacity expansion
Capacities coming up in China
Supply demand dynamics being altered in case of global slowdown.
 
I would welcome your thoughts as well.
 
Thanks Sajan, for your reply. Actually i do not know much abt this co. Will be difficult for me to understand their business.
 
Best wishes


-------------
I love my money, not my opinion. So i am ready and willing to change my opinion for the sake of protecting my money.

Posted By: vishu013
Date Posted: 12/Jan/2009 at 4:21pm
Any updates on this counter ? Its been thrashed to 15 odd levels. Any specific news/updates on this company ?

Posted By: commnman
Date Posted: 03/Nov/2011 at 2:23pm
Someone somewhere asked Hit bhai about this Company. So,
Q2/Fy-12 Results out...

Total Income up 26.3% to 55.47 Cr from 43.91 Cr.
EBIDTA up 56.5% to 10.55 Cr from 6.74 Cr.
Net Profit up 30.3% to 5.6 Cr from 4.3 Cr.

EBIDTA margin is 19% V/s 20% (JQ-11) and 15.4% (SQ-10)
NET Pr margin is 10.1% V/s 11.1% (JQ-11) and 9.8% (SQ-10)

Total Raw material costs as a %ge to Income is 54.8% V/s 56.9% (JQ-11) and 59.6% (SQ-10)
Employee costs to Income is stable around 2.5% of Income.
Power & Fuel expenses to Income is 12.1% V/s 9.2% (JQ-11) and 9.6% (SQ-10)
Other expenses to Income is 11.5% V/s 11.3% (JQ-11) and 13.2% (SQ-10)

Interest expense to EBIT is 13.6% V/s 13.4% (JQ-11) and 13.1% (SQ-10)

H1/Fy-12 v/s H1/Fy-11:
Total Income up 25.4% to 111.1 Cr from 88.62 Cr.
EBIDTA up 61% to 21.66 Cr from 13.45 Cr.
Net Pr up 38.7% to 11.76 Cr from 8.47 Cr.

Tax Rate 28.62% V/s 11.9%
Interest costs to some extent and sudden jump in Tax incidence affected net profits.

Reported Half-Year EPS 9.58 V/s 6.9
-

-------------
main toh aam aadmi hun... jo sunta hoon wohi sach maanta hoon


Print Page | Close Window