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Fundamentally Strong Petrochemical Stock Under 100 Rs. | CA Rachana Ranade - YouTube

Channel: CA Rachana Phadke Ranade

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Hey folks!!! CA Rachana Ranade here and I welcome you all to yet another informative video but why

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am I making this video you know I done this video which was about fundamentally strong stock under

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a thousand and your response was really good then I did another video which was about fundamentally

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strong stocks under 500 and your response was like amazing and then you know what did I think, yes I

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thought about doing this video on fundamentally strong stock under 100 rupees so you know my

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expectation right so I would want everyone to share this video with maximum friends hit that

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like button oh my god I am getting this chance to promote this right at the beginning but do

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that and before I move on with the video I would really like to thank Janvi and Akangsha for these

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wonderful comments I am really happy to notice that not only these girls are starting their own

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investing journey but they are also helping others to get started with their investment journey.

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Let me tell you the name of the company which we are going to discuss in this video the name

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is TN Petro products limited Tamilnadu Petro products limited, okay but the moment I use

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the word Petro or petrochemicals many people feel that maybe they are going to sell petrol,

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diesel and something like that No that's not the answer okay first we need to understand what do

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we mean by petrol or petrochemical so just for your understanding first understand the

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definition petrochemicals are chemicals derived from petroleum or natural gas so if I what to do,

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a visual representation of that what are petrochemicals these are chemicals which are

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derived from what either petroleum or natural gas, so from this what is derived various petrochemical

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products like what? it could be something like methanol or ethylene, it could be propylene,

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butadiene, toluene, xylene, benzene, kerosene, now why are we keeping this on screen? because

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for TN Petro, benzene and kerosene are the most important raw materials why how we are going to

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discuss in the coming parts of the video, okay now from these petrochemicals they again derive

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few other petrochemical products like what? they prepare LAD that is linear alkyl benzene, second

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one is caustic soda, third is chlorine and fourth one is propylene oxide I am sure those who have

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learned chemistry and have left this subject long back for them it's going to be like oh my god I am

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revisiting these names after so many long years so what we are going to do the four key products of

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the company we are going to discuss in detail basically we are going to try and understand

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what is the use case of these products? where or in which industries are these products used?

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now let's try and understand the revenue contribution by each of these products, so

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if you see here out of these four products a major revenue contribution is by LAB only right, but we

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are also going to understand the use cases of all these products in detail in the immediate in this

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section only right one more point I would want to make if you check the revenue by geographical

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region you can see that there is no exports done by the company whatever they are manufacturing

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is being domestically consumed, right so let's start with the first product that is LAD

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linear alkyl benzene so first understand this linear alkyl benzene is going to be used as a raw

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material to make what LAS and what is LAS? linear alkyl benzene sulfonate oh my god but that's okay

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we need to understand what is the use case of this LAS, okay LAS is used as a surfactant

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in detergents and cleansing products you might be like oh my god now what is this surfactant,

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so surfactant in simple words is nothing but an ingredient which is used in detergents to reduce

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the tension between what so basically it's used to reduce the surface tension surface tension of what

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may be a solid and some liquid to reduce the tension, right so that is what it is mainly

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used for it can also be used to reduce the surface tension between two liquids

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a gas and a liquid and so on right in layman's language I can say that to remove stains from

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clothes LAS is required LAS is manufactured from LAB and LAB is the product manufacture product of

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this company simple okay now LAB also has some significant commercial importance in what now you

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can easily understand it is used in what laundry liquids dish dishwashing liquids laundry powders

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household cleansers and major demand comes from what household detergent makers simple okay okay

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what is it used for it is used also in cable oils it is used for preparation of ink solvents

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in emulsion polymerization process and so on okay but main thing that you have to remember for LAB

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what was that from LAB LAS is made ls is used as a surfactant to remove stains right fantastic what

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is the second product second product is caustic soda okay caustic soda is also known as sodium

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hydroxide now if you ask me what is the use case of this caustic soda main use case is again that

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it is used as a cleansing agent cleansing agent for what to remove stubborn stains from laundry,

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okay so if you remember stubborn stains means what in advertisements you might have seen

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zidi dag or miale that ziddhi dag is nothing but what stubborn stains and how is it removed by

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using caustic soda who makes that this company makes caustic soda okay any other use cases?

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YES caustic soda is also used to treat hard water it also finds some use cases in industries such as

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textile pulp and paper aluminum industry and so on one more additional feature or I can say use case

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of this is that it is also used in preparation of soda lime now soda lime what is the important

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characteristic? its characteristic is that it can absorb gases including carbon dioxide,

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so again one more time caustic soda is used in preparation of what soda lime,

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soda lime can absorb gases have you seen movies like URI and you might have seen that whenever

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some military operations are done they throw some bombs or whatever and from that some hazardous

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gases are released but still our army men are fit and fine why? because the helmets that they wear

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inside that these things like soda lime is very much there which absorb the toxic gases

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right ,so I hope you have also understood one more use case of caustic soda, moving on to their third

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product which is chlorine, chlorine everyone knows it's used as a cleansing agent again I am sure

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everyone knows it's used in swimming pools right so out of the first four products of the company

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first three are somewhere related to cleansing only, right moving on to the fourth product it's

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propylene oxide and propylene oxide is mainly used for derivative products such as propylene

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glycol and polyol, I am sure you might be like Rachana is continuously looking at her screen but

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these names are so heavy for me I have to look at the names right so let's understand the use

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case of propylene glycol, it's mainly used in making foams now I am sitting on a chair

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the chair has a foam, in your car seat you have a foam, whenever you are going to some

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indoor sporting game okay something like maybe gymnastics or something like that there also on

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the bar you will have a foam, all these foams are used are prepared using what?propylene

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glycol okay and the second one was polyol that they are making and polyol is basically used

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to again use case is like they are used for making sugar-free sweeteners

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you might have seen that I mean chewing gums or candies beverages they are artificially sweetened

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actual sugar is not put and artificial sweeteners will contain something known as polyols,

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my god too much things but I hope you have understood or just have a look at all these

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four products again and four products out of these first three mainly used in cleansing

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and fourth one was like propylene glycol and polyol okay, now if I were to go back to the

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main diagram that where we started in that if you remember I said kerosene and benzene let it stay

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on the screen why because they are the two major raw materials for them now if you have a look at

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this specific image you can see that out of the total raw material cost consumed which is around

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50,000 lakhs, then you can see that almost 78% of the total raw material cost is contributed only

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by kerosene and benzene now, if I were to compare raw material cost as a percentage to sales also

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raw material cost is almost 50% of the total sales now why am I getting so excited/ worried ? because

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kerosene and benzene is one of their key raw materials for this company, kerosene benzene

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is a petroleum product basically made out of crude oil so now if the crude oil prices go

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up then their raw material cost is going to go up and which might hamper their profitability.

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Now let's do a quick industry analysis of their major product that was LAB and if you

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remember almost 80% of the revenue was being contributed by LAB right, so LAB I am sure

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everyone can recall major application it, it finds in what detergents and cleansers and all

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that so major companies like HUL, Jyoti, LABs are their customers are there clients right now if you

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think about this what do you feel TN Petro is a company which fits into the cyclical type of

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industry/ or does it fit into a defensive type of industry? the logical answer will be defensive why

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because irrespective of the overall GDP growth, cleanser sanitizers disinfectants all these are

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anyways going to be manufactured and used in the country and in current scenario I am sure everyone

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will be like yes it is going to be used right, now LAB the as far as the product is concerned we have

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to understand how much is the total production capacity of this product in India and who are the

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major competitors or major players who manufacture LAB so for that understand India's total capacity

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of LAB production is 5,50,000 mtpa that's metric ton per annum, now out of this Reliance industries

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which is one of their key competitors manufactures or has a capacity basically of 1,80,000 mtpa,

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second one is IOC with a production capacity of 1,40,000 mtpa in fact they recently ramped it up

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originally it was 1,20,000. now latest is 1,40,000 and now TN Petro where do they

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stand they are currently at 1,20,000 mtpa, but they have mentioned in their annual

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report that they are planning to increase it to 1,45,000 mtpa and once this happens

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they will be like the second in the industry so now if you check Reliance plus TN Petro plus IOC,

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all three players together account for almost 80% production capacity of LAB so others

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are just like scattered players now question is do they have peers only in India? or are there any

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other competitors outside India? as well answer is YES so there are certain state-owned organizations

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something somewhere in Yanbu Saudi Arabia just to give as an example

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they have a production capacity of 1,20, 000 mtpa now why did I give this as an example only because

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of course in Saudi Arabia crude oil, petroleum products are abundantly available and that is the

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reason why they might have a cost competitiveness in simple words they might be able to manufacture

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this product at a comparatively lower price and this can be as a threat to Indian producers,

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so I hope you have understood overall scenario of LAB at the industry level.

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So let's get started with the fundamental analysis of TN Petro products limited,

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if you see basic points market capitalization is only 765 crores and that's why it is a small cap,

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right if you check out some other important points something like what is the book value

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of the company book value is 83.2 omg book value is 83.2 current price is 85

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it means that it's trading at a price to book value of around 1 but then in that case

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what has been on an average price to book value? so for that what we can do we can just go down and

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here we can also check what is the price to book value here if you can see there was a big surge

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right here and then it has gone down it has it is currently at one cup price to book value but what

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is this median p2pv? it is somewhere around 0.7, okay so if we may see that okay ideally median is

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point seven it may go down till here but will it go down for that? we need to do technical analysis

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and we are going to do that in the next section of the video, so moving ahead with the fundamentals

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if you see our sales growth not bad at 57.7% last three years CAGR at around 13.2% sales growth,

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profit growth is also good and last three years profit growth is also good so if you see here

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they the company also has has good free cash flows of 71.7 Cr. pledge percentage is zero,

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healthy current ratio so all in all if you see no problem till here right,

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but here you can see the contingent liability for the company is 98.8 Cr. now why am I stressing on

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this contingent liability? I am going to take you to the quarterly results of the company.

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The latest net profit of the company is 25 Cr so even if I double that it's 50 Cr.

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last quarter even if I ignore let's go to previous quarter it's 48 crores right so 48 crores double

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is almost 96 crores and the contingent liability is 98 crores so that can be a little bit of

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question mark so we can go into the little bit details of the continent liability so this is the

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screenshot from the annual report of the company it's sales tax exercise duty etc., but important

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out of this is this one this figure which is 61.3 Cr and this is something like a cross subsidy

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charge under group captus scheme and whatever even if you don't read into these details it's

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okay but what does the company believe is given in the last line this is expected to be disposed of

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in the favor of power producers in simple words company believes that the 61 crores contingent

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liability ideally company will not have to pay so that will be a good sign for the company in that

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case right so moving ahead if I were to go to the quarterly results all in all you can see that yes

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their sales is increasing, just March quarter was a shade lower as compared to the December

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quarter but operating profit is doing good again whatever problems you can see has happened in the

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last quarter March quarter again you can see that there is a dip in operating profit margin now why

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could this be so if you remember crude oil crude oil has been going up continuously and if you are

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watching the latest news if you are following my Thursday live streams also you must be aware of

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the fact that crude oil prices have been going up continuously because of which their profitability

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might have seen an impact right, if you go on to the yearly P&L, yearly P&L is good their sales is

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at an all-time high, operating profit is also at an all-time high and so is the profit before tax

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compounded sales growth, profit growth we have talked about ROE is also good, ROE is last three

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years average is 21% , last year it is 26% but the stock price has taken a hit of almost 23% in the

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last one year but everyone knows what has happened with the market in the last one year right

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especially in the last three four months so that is the reason why stock is corrected quite a bit,

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reserves are good borrowings is very less, so in simple words I can say debt to equity ratio is

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also very much comfortable, their operating cash flows are also good in positive and continuously

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increasing, one or two question mark points can be something like the cash conversion cycle which has

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been continuously increasing since the last few years and more cash conversion cycle is equal to

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more and more cash is locked in their business for a longer time in fact I also have a separate

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video for this don't forget to watch this video if you don't know what is a cash conversion cycle.

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If I go to the shareholding pattern you can see that yes FYIS have been

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increasing their stake in fact if I am checking June quarter versus march quarter

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their holding has almost doubled and June 21/ march 21 DIS are almost at a similar

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pace so I hope all in all you are clear about what are the fundamentals of this company.

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So first we are going to do the technical analysis for on a weekly time frame and then we are going

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to go ahead with a monthly time frame technical analysis now question is why not on a daily time

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frame? reason is simple I am sure everyone those who are following markets you know that markets

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are really volatile right now on top of that this stock is a small cap, so can it see huge

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volatility? YES so I am not looking at this stock from a short term perspective I am looking at this

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stock from a medium to long term perspective right, so with this in mind let's start with

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the technical analysis right so first if you see I have drawn a FIBONACC level here and the

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retracement from its highs, highs is somewhere around 150 rupees from there the retracement at

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50% comes to somewhere around 85.25 and if you see here the stock is at this level right now

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and a nice hammer has been formed, so ideally a hammer being formed shows a sign of reversal

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should this be the only sign which you should take to initiate the trade? answer is NO but this is

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one of the signals of reversal right plus it is at 50 which is ideally considered as a solid support,

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if this is broken then the next support is at 61.8 replacement that is 69.65 at 70 rupees

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so please understand p2pv valuation the median p was way too lower than this so this would be a lot

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more conservative p to b approach so technical analysis if you ask me this level looks to be a

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good level if this is broken then 70 can be a good level in the medium term what about long term now

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in the long term I try to zoom out and if you see here I have drawn this line here which is about

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an original resistance but now acting as a support how let's see this somewhere around

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17- 18 the stock tried to break this went down came down then you can see something like a nice

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u-shaped pattern has been formed here and this was broken and that too with good volumes this

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is like plain price action right so price goes up with good volumes it went up and again it is

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re-testing the same level so ideally I can say that this is a strong support from here,

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if it is re-testing there can be a potential bounce from this level but this is on a

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monthly time frame so I hope you have understood how the stock can look in the medium to long term.

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Well I hope you enjoyed this video but just in case if you didn't understand the last

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section of the video which was about technical analysis it means that you need to upgrade your

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knowledge about technical analysis so if you want you can surely go and check out my course

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on my website rachanaranade.com, link is also there in the I button and if you want to know

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more about top two fundamentally strong stocks under a thousand you can click here if you want

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to know more about fundamentally strong stocks under 500 then click here till then take care.

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