Incorporated in 1972, Tanfac Industries Ltd is a joint sector company promoted by Aditya Birla Group, which holds 25% stake in the company, and Tamil Nadu Industrial Development Corporation (TIDCO). The company began commercial production in March 1985 and is amongst the leading producers of Hydrofluoric Acid and its derivatives.
Tanfac is engaged in the manufacture of inorganic fluorine-based chemicals like Anhydrous Hydrofluoric acid, Sulphuric Acid, Oleum, Aluminum Fluoride, Potassium Fluoride, Potassium Bifluoride, Boron Trifluoride Complexes, Calcium Sulphate (Gypsum), IsoButyl Acetophenone, Acetic Acid, Peracetic Acid and Poly Aluminum Chloride, etc.
The company's manufacturing facilities are spread over 60 acres in the chemical complex of SIPCOT, Cuddalore. Currently, the company has an Androus Hydrofluoric Acid capacity of 15,600 metric tons per annum (MTPA), 15,600 MTPA of Aluminum Fluoride, 81,600 MTPA of sulphuric acid and 3,400 MTPA of specialty fluorides.
The company's products find applications in industries such as aluminum smelting, petroleum refining, refrigerant gases, steel re-rolling, glass, ceramics, sugar, fertilizers, and heavy water.
The Company operates in a single segment i.e., Fluoro-chemicals in India. In the FY21, the company did sale of manufactured goods to the tune of Rs. 146 Cr., which comprised of Aluminium Fluoride 2%, AHF Acid and Sulphuric Acid 60%, Specialty Chemicals 38%.
It has technical tie ups with -
Davy Process, Switzerland - for Aluminium Fluoride (Know-how and equipment)
CHENCO,Germany - for Hydrofluoric Acid (Know-how and equipment)
Grasim Industries Limited - for Sulphuric Acid / Oleum (Design and Erection)
The company's ratings were upgraded by ICRA in November 2021. Excerpts from the report are as follows: -
Credit strengths
Long track record in fluorochemical manufacturing – TIL has an extensive track record of manufacturing fluorochemical products for more than three decades.
Healthy financial risk profile – The company’s financial profile has strengthened over the years with improved profitability levels and limited dependence on debt. On the back of healthy profitability, the company had repaid the ICD from the parent Group in FY2019 and redeemed the preference share in FY2020 and stood debt free as on September 30, 2021 with healthy capital structure and coverage indicators. In FY2021, while the company’s revenue moderated by 10% to Rs 147.9 crore on account of decline in HF sales, margins witnessed healthy improvement due to significant increase in sales realisation of specialty fluorides due to increased demand. In H1 FY2022, revenue and profitability improved driven by new ALF orders executed, significant increase in realisation of sulphuric acid, continued high realisation of speciality fluorides and YoY improvement in HF sales volumes. Going forward, with improved HF capacity utilisation, healthy demand for the products and improvement in cost structure, the revenue and profitability is expected to remain healthy.
Increased product diversification in recent years – TIL has focused on product diversification and margin accretive revenue streams in recent years, which has resulted in increased share of speciality fluorides over the last few years although the revenue share remained moderate till FY2020 owing to increased revenue contribution from major segment. However, due to increased demand on account of the pandemic, the specialty fluorides segment witnessed healthy sales growth in FY2021 and H1 FY2022 witnessing significant improvement in revenue share as well.
Support from Aditya Birla Group – TIL is a joint sector company between Aditya Birla Group and Tamil Nadu Industrial Development Corporation (TIDCO). Despite having only 25% stake in TIL as per the Government of India guideline for joint sector undertakings, the management control in the company vests with the Aditya Birla Group. TIL had received financial support from the Group in the past at times of distress. Further, being part of the Aditya Birla Group, also enables TIL to enjoy better terms with suppliers.
Credit challenges
Moderate scale of operations - TIL has moderate scale of operations, with operating income in the range of Rs 120–220 crore during FY2015–FY2021 which however witnessed significant improvement in H1 FY2022. Although the increased sales realisation of H2SO4 and the increased demand for specialty fluoride that supported the revenue in H1 FY2022 is not expected to be sustainable, the increased capacity utilisation of HF facility and healthy demand for the products is expected to support the revenue of the company in coming fiscals.
Revenue and profitability remain susceptible to market disruptions, end user cyclicality and resultant price volatility - TIL faces competition from domestic manufacturers as well as from imports, especially from China, which limits its pricing power. Being commodity chemicals, the price of HF, ALF and H2SO4 are exposed to demand-supply scenario and face considerable price volatility. In addition, the demand and price for the products are also susceptible to the cyclicality inherent to the end user industries. Hence the company’s profitability is exposed to volatility in the spread between global products and raw material prices. However, the cost control measures undertaken by the company over the years have mitigated the impact to some extent. While the profitability is also exposed to forex fluctuations, the company has a hedging policy in place limiting the adverse impact.
Increasing environmental scrutiny on transport of HF - TIL is exposed to increasing environmental scrutiny on transport of HF and any adverse changes in environmental policies will be a credit challenge. While the regulations related to transportation of the HF is expected to get more stringent going forward, the company has transportation permit from PESO valid for 3 years mitigating the risk in near term.
Liquidity position: Strong
Although the company is undertaking a modernization capex to be completed by FY2023 which is planned to be funded through internal accruals and has another sizeable debt funded capex plan in near future, the liquidity is expected to remain strong on the back of healthy cash flow from operations, healthy unencumbered cash and bank balance of ~Rs 32 crore as on September 30, 2021, no term debt repayment obligations and availability of unutilised working capital limits.
On February 2022 though, ICRA informed that Ratings were placed on watch because of the following developments: -
On February 1, 2022, Tanfac Industries Limited (TIL/the company) announced that certain members of the promoter and promoter group, namely Birla Group Holdings Private Limited (BGHPL), Pilani Investments Industries Corporation Ltd and Mr. Askaran Agarwala, have agreed to sell their cumulative stake of 24.96% in the company to Anupam Rasayan India Private Limited (ARIPL) at a total consideration of Rs. 148.14 core. In view of the proposed transaction, TIL, ARIPL, BGHPL and Tamil Nadu Industrial Development Corporation Limited (TIDCO) have entered into an amendment of the joint venture agreement whereby BGHPL will be replaced by ARIL as a joint venture party, subject to the completion of certain regulatory requirements. In addition, ARIL has also announced an open offer to the public shareholders of TIL whereby it plans to acquire up to 26.0% stake in the company for a total consideration of Rs 154.31 crore.
ICRA says it has taken note of the above events and has placed the ratings of TIL under watch with developing implications. ICRA will monitor the progress of the acquisition as well as completion of the open offer as per the proposed timelines and its impact on the credit profile of the company. Accordingly, ICRA will take an appropriate rating action, going forward.
On 6th May Tanfac Industries informed the Stock Exchange that they have approved the Postal Ballot Notice for obtaining the approval of the appointment of Mr. Afzal Harunbhai Malkani (DIN : 07194226) as the Non-Executive and Non-Indenpent Director of the Company by the members of the Company. Mr.Afzal Malkani had joined Anupam Rasayan India Limited (a chemical manufacturing entity listed in March 2021 on BSE & NSE) in October 28, 2005 and was appointed as its Chief Financial Officer with effect from December 1, 2014. He has experience in corporate financing, fund raising from banks, financial institutions, private equity, treasury management, business development, mergers & acquisitions and has been heading the accounts, finance, debt management, investor relations etc. He had led the IPO of size INR 760 crores of Anupam Rasayan India Limited in 2020-21.
Financial information: -
Five year CAGR sales and profit at 20% and 74%.
TTM sales growth at 116% and TTM profit growth at 205%.
Average Roe for last 10 years at 33%, last five years at 46% and for last three years it has been 36%.
Debt to equity at 0.00 (less than 1 is good), Interest Coverage at 71.5 (greater than 3 is good), Current ratio at 2.85 (greater than 1.5 is good), FCF to CFO at 84.2%.
Debtor days improved to 28 in March 2022 from 40 in March 2021.
On the chart I have tried to pinpoint the confluence of multiple supports and resistances as demand zones. These demand zones can prove to be good areas to accumulate this stock but prices can go down below these support levels too and stay there for many months. Buy at your own risk. One will do good if he/she can find the demand zones with at least three supports and three resistances and buy there. 200 week moving average also acts as a good support.
Disclaimer: I am not SEBI Registered. Do trade or invest at your own risk, I am not responsible for any losses and won't claim anything from your profits either. Take financial advices from your advisors before jumping in.
Tanfac is engaged in the manufacture of inorganic fluorine-based chemicals like Anhydrous Hydrofluoric acid, Sulphuric Acid, Oleum, Aluminum Fluoride, Potassium Fluoride, Potassium Bifluoride, Boron Trifluoride Complexes, Calcium Sulphate (Gypsum), IsoButyl Acetophenone, Acetic Acid, Peracetic Acid and Poly Aluminum Chloride, etc.
The company's manufacturing facilities are spread over 60 acres in the chemical complex of SIPCOT, Cuddalore. Currently, the company has an Androus Hydrofluoric Acid capacity of 15,600 metric tons per annum (MTPA), 15,600 MTPA of Aluminum Fluoride, 81,600 MTPA of sulphuric acid and 3,400 MTPA of specialty fluorides.
The company's products find applications in industries such as aluminum smelting, petroleum refining, refrigerant gases, steel re-rolling, glass, ceramics, sugar, fertilizers, and heavy water.
The Company operates in a single segment i.e., Fluoro-chemicals in India. In the FY21, the company did sale of manufactured goods to the tune of Rs. 146 Cr., which comprised of Aluminium Fluoride 2%, AHF Acid and Sulphuric Acid 60%, Specialty Chemicals 38%.
It has technical tie ups with -
Davy Process, Switzerland - for Aluminium Fluoride (Know-how and equipment)
CHENCO,Germany - for Hydrofluoric Acid (Know-how and equipment)
Grasim Industries Limited - for Sulphuric Acid / Oleum (Design and Erection)
The company's ratings were upgraded by ICRA in November 2021. Excerpts from the report are as follows: -
Credit strengths
Long track record in fluorochemical manufacturing – TIL has an extensive track record of manufacturing fluorochemical products for more than three decades.
Healthy financial risk profile – The company’s financial profile has strengthened over the years with improved profitability levels and limited dependence on debt. On the back of healthy profitability, the company had repaid the ICD from the parent Group in FY2019 and redeemed the preference share in FY2020 and stood debt free as on September 30, 2021 with healthy capital structure and coverage indicators. In FY2021, while the company’s revenue moderated by 10% to Rs 147.9 crore on account of decline in HF sales, margins witnessed healthy improvement due to significant increase in sales realisation of specialty fluorides due to increased demand. In H1 FY2022, revenue and profitability improved driven by new ALF orders executed, significant increase in realisation of sulphuric acid, continued high realisation of speciality fluorides and YoY improvement in HF sales volumes. Going forward, with improved HF capacity utilisation, healthy demand for the products and improvement in cost structure, the revenue and profitability is expected to remain healthy.
Increased product diversification in recent years – TIL has focused on product diversification and margin accretive revenue streams in recent years, which has resulted in increased share of speciality fluorides over the last few years although the revenue share remained moderate till FY2020 owing to increased revenue contribution from major segment. However, due to increased demand on account of the pandemic, the specialty fluorides segment witnessed healthy sales growth in FY2021 and H1 FY2022 witnessing significant improvement in revenue share as well.
Support from Aditya Birla Group – TIL is a joint sector company between Aditya Birla Group and Tamil Nadu Industrial Development Corporation (TIDCO). Despite having only 25% stake in TIL as per the Government of India guideline for joint sector undertakings, the management control in the company vests with the Aditya Birla Group. TIL had received financial support from the Group in the past at times of distress. Further, being part of the Aditya Birla Group, also enables TIL to enjoy better terms with suppliers.
Credit challenges
Moderate scale of operations - TIL has moderate scale of operations, with operating income in the range of Rs 120–220 crore during FY2015–FY2021 which however witnessed significant improvement in H1 FY2022. Although the increased sales realisation of H2SO4 and the increased demand for specialty fluoride that supported the revenue in H1 FY2022 is not expected to be sustainable, the increased capacity utilisation of HF facility and healthy demand for the products is expected to support the revenue of the company in coming fiscals.
Revenue and profitability remain susceptible to market disruptions, end user cyclicality and resultant price volatility - TIL faces competition from domestic manufacturers as well as from imports, especially from China, which limits its pricing power. Being commodity chemicals, the price of HF, ALF and H2SO4 are exposed to demand-supply scenario and face considerable price volatility. In addition, the demand and price for the products are also susceptible to the cyclicality inherent to the end user industries. Hence the company’s profitability is exposed to volatility in the spread between global products and raw material prices. However, the cost control measures undertaken by the company over the years have mitigated the impact to some extent. While the profitability is also exposed to forex fluctuations, the company has a hedging policy in place limiting the adverse impact.
Increasing environmental scrutiny on transport of HF - TIL is exposed to increasing environmental scrutiny on transport of HF and any adverse changes in environmental policies will be a credit challenge. While the regulations related to transportation of the HF is expected to get more stringent going forward, the company has transportation permit from PESO valid for 3 years mitigating the risk in near term.
Liquidity position: Strong
Although the company is undertaking a modernization capex to be completed by FY2023 which is planned to be funded through internal accruals and has another sizeable debt funded capex plan in near future, the liquidity is expected to remain strong on the back of healthy cash flow from operations, healthy unencumbered cash and bank balance of ~Rs 32 crore as on September 30, 2021, no term debt repayment obligations and availability of unutilised working capital limits.
On February 2022 though, ICRA informed that Ratings were placed on watch because of the following developments: -
On February 1, 2022, Tanfac Industries Limited (TIL/the company) announced that certain members of the promoter and promoter group, namely Birla Group Holdings Private Limited (BGHPL), Pilani Investments Industries Corporation Ltd and Mr. Askaran Agarwala, have agreed to sell their cumulative stake of 24.96% in the company to Anupam Rasayan India Private Limited (ARIPL) at a total consideration of Rs. 148.14 core. In view of the proposed transaction, TIL, ARIPL, BGHPL and Tamil Nadu Industrial Development Corporation Limited (TIDCO) have entered into an amendment of the joint venture agreement whereby BGHPL will be replaced by ARIL as a joint venture party, subject to the completion of certain regulatory requirements. In addition, ARIL has also announced an open offer to the public shareholders of TIL whereby it plans to acquire up to 26.0% stake in the company for a total consideration of Rs 154.31 crore.
ICRA says it has taken note of the above events and has placed the ratings of TIL under watch with developing implications. ICRA will monitor the progress of the acquisition as well as completion of the open offer as per the proposed timelines and its impact on the credit profile of the company. Accordingly, ICRA will take an appropriate rating action, going forward.
On 6th May Tanfac Industries informed the Stock Exchange that they have approved the Postal Ballot Notice for obtaining the approval of the appointment of Mr. Afzal Harunbhai Malkani (DIN : 07194226) as the Non-Executive and Non-Indenpent Director of the Company by the members of the Company. Mr.Afzal Malkani had joined Anupam Rasayan India Limited (a chemical manufacturing entity listed in March 2021 on BSE & NSE) in October 28, 2005 and was appointed as its Chief Financial Officer with effect from December 1, 2014. He has experience in corporate financing, fund raising from banks, financial institutions, private equity, treasury management, business development, mergers & acquisitions and has been heading the accounts, finance, debt management, investor relations etc. He had led the IPO of size INR 760 crores of Anupam Rasayan India Limited in 2020-21.
Financial information: -
Five year CAGR sales and profit at 20% and 74%.
TTM sales growth at 116% and TTM profit growth at 205%.
Average Roe for last 10 years at 33%, last five years at 46% and for last three years it has been 36%.
Debt to equity at 0.00 (less than 1 is good), Interest Coverage at 71.5 (greater than 3 is good), Current ratio at 2.85 (greater than 1.5 is good), FCF to CFO at 84.2%.
Debtor days improved to 28 in March 2022 from 40 in March 2021.
On the chart I have tried to pinpoint the confluence of multiple supports and resistances as demand zones. These demand zones can prove to be good areas to accumulate this stock but prices can go down below these support levels too and stay there for many months. Buy at your own risk. One will do good if he/she can find the demand zones with at least three supports and three resistances and buy there. 200 week moving average also acts as a good support.
Disclaimer: I am not SEBI Registered. Do trade or invest at your own risk, I am not responsible for any losses and won't claim anything from your profits either. Take financial advices from your advisors before jumping in.