Clariant
Chemicals is one of India’s leading specialty chemicals company. It holds
leadership positions in pigments, textile chemicals, leather chemicals etc. In
stock markets, its a well respected company which is held by a lot of long term
investors. The company is known for its generous
dividends and it shares more than 70% of its profits with its
shareholders.
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| Clariant Chemical India |
If you are
familiar with our stock picks in Dead
Monk’s Portfolio & list
of great dividend stocks, you would know that we hold Clariant in our
personal & family portfolios. This is the reason why we are concerned about
the recent announcement by company’s parent Clariant AG (link).
Also, the share prices of Clariant India have fallen 15-20% since the
announcement.
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| Stock Price after the deal announcement |
Recent Announcement
“Clariant has signed an
agreement to divest its Textile Chemicals, Paper Specialties and Emulsions
businesses to SK Capital. The total consideration of the sale amounts to
approximately 460 million in cash, equivalent to 6.3 times the estimated full
year 2012 recurring EBITDA of those businesses."
Effects of this announcement
Effect
on revenues & profits
On a global
level, this would reduce revenues by about 15% and profits by 10%. As far as
Clariant India is concerned, we don’t know the exact impact as even after a
month of the announcement, company has not given out details about revenue,
profits & margins of the divested business. Our mail to assistant company
secretary of Clariant India regarding the same did not elicit a response.
As of now, we can only make a guess that revenues and profits are bound to
reduce.
Effect
on growth, profitability & margins
Are the
remaining businesses more profitable & growth focused than the divested
ones? Seems probable because of parent company’s announcement:
“Repositioning the company’s
portfolio is an essential part of Clariant’s profitable growth strategy.
To achieve the targets set for 2015, Clariant will focus on markets with future
perspectives and strong growth rates and on businesses that have
a competitive position, resulting in strong pricing power.”
Effect
on dividends
Should the
investor’s expect a generous dividend this time around? This again seems
probable because of company’s long term policy of sharing most of its wealth
with its shareholders.
What are we doing?
We have
held Clariant India in our personal & family portfolio for years. So, even
after this correction, our holding is highly profitable and we are not
interested in selling it. Clariant India has been a Dividend Champion for us
and we will continue holding what we already own. But, with a correction of
close to 20%, aren’t we tempted to buy more? Yes we are. But we will wait to
get more clarity on issues raised above. For example, if remaining businesses of
Clariant offer higher margins and higher growth potential, then this fall
(& further fall, if any) in stock price, can offer good entry point for
long term investors to accumulate this stock. Though revenues and profits would
be reduced for next few quarters/years, so would be the stock price.
But as of
now, there are too many missing pieces in this jigsaw and hence, it is better
to wait for further announcements by the company.
What should you be doing?
If you already
own this stock, then don’t panic. Clariant India is a great company which is
known for its leadership position and for efficient capital allocation. Wait
for the company to clarify before you take any call on whether to hold,
accumulate or sell the stock.
If you have
any information or any other views, feel free to share it in comments section
or our Facebook Page.
Disclosures:
Hold Long term investments in Clariant
India.
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Guys, not sure if you ever noticed...Going through the annual reports, I have seen that one of the directors for Clariant India is on the boards of Atul Ltd, a competitor for Clariant Chemicals...now isnt that a rather obvious conflict of interest ? Or am i missing something?
ReplyDelete@2ff086ba9bddf5dfd037a4bdbfbee0af:disqus
ReplyDeleteWe think you are talking about Mr. R A Shah. Actually he is on board of many other chemical companies too. He is also a Senior Partner of M/s. Crawford Bayley & Company, a firm of Solicitors & Advocates. He specializes in a broad spectrum of corporate laws.
As far as conflict of interests are confirmed, it is possible. But we think this fact may have no bearing on the current issue of divestment of 3 businesses as its the decision of the Parent company rather than Indian subsidiary.
Yup , i got that....seemed rather odd , though...Im a long time tracker of Clariant Chemicals:)...you guys should consider Eclerx and Engineers India for either your dividend or long term portfolio...
ReplyDelete@2ff086ba9bddf5dfd037a4bdbfbee0af:disqus
ReplyDeleteAlright. We haven't tracked Eclerx, but we do we like EIL.
Do keep us posted about Clariant though :-)
Any thought on weather it can be added now or not? did we get any clarity? I already own this stock and purchase price is around 560
ReplyDelete@798aebd5066c051cef704eebffa1ba87:disqus
ReplyDeleteThe company has failed to disclose the margins of the businesses it sold as well of those which still remain with it. And stock seems to be in a continuous downtrend. We feel that it may be a wise idea to wait a little more to get clarity on these fronts.