Classification for Penny stocks

Penny stocks are those that trade at a very low price, have very low market capitalisation, are mostly illiquid, and are usually listed on a smaller exchange. Penny stocks in the Indian stock market can have prices below Rs 10. However we choose to classify penny stocks as those trading below 100 Rs as penny stocks irrespective of market capitalisation.

Few Points to read before investing in any penny stock idea

• Penny stocks are extremely risky and can lead to complete loss of capital.
• One must invest only that amount in penny stocks which he/she would be happy to loose. 
• Never get greedy while investing in penny stocks. Always keep booking partial profits atleast until you get back you invested capital.
• Penny stock idea companies are for extremely long term which could be from 3-5 years.
• Just because our past penny stock ideas turned out to be amazing there is no guarantee that all ideas would deliver similar returns. Although due care is taken while presenting companies but there is always an inherent risk while exploring penny stock ideas.
• Once the penny stock is suggested , we don’t track its financial and no guidance regarding the same will be provided in the future.
• And most important thing, We are not SEBI registered and this is in no way a recommendation to buy or sell. Our job is to provide information about the company only. If you choose to invest it would be at your own risk. No member of darkhorsestocks would be responsible for any loss.

The company suggested today has been put under Additional Surveillance measure by BSE.

TGV SRAAC

TGV SRAAC, the TGV Group’s flagship company, produces caustic soda, liquid chlorine, hydrochloric acid, hydrogen, and barium sulfate. It is the world’s leading manufacturer of ChlorAlkali products, Chloromethane, Castor Derivaves, and Fay Acids.

Share price on the date of publishing this report-: 80/ 68 Rs (Revised)

(Please read note at the end to understand (-10%))

About/ Incorporation

Incorporated in, 1981, TGV SRAAC Ltd (erstwhile Sree Rayalaseema Alkalies and Allied Chemicals Ltd; SRAAC) belongs to the TGV Group of Industries promoted by Mr. T G Venkatesh. SRAAC is primarily engaged in the business of manufacturing chemicals like caustic soda, caustic potash, sodium hypochlorite, chlorine, hydrochloric acid, hydrogen gas etc.

The firm began commercial production of caustic soda in August of 1988, with an initial installed capacity of 22,440 tpa. The firm currently has a capacity of producing 69500 TPA of caustic soda (Capacity might have increased currently. . For the production of caustic soda and related products, the business uses Bipolar Membrane Cell Technology, which is the most advanced in the world.

Bipolar Membrane Cell Technology-: Bipolar membranes (BPMs) are a special class of ion-exchange membranes constituted by a cation- and an anion-exchange layer, allowing the generation of protons and hydroxide ions via a water dissociation mechanism. Such unique feature makes bipolar membranes attractive for a variety of applications in many sectors, such as (bio)chemical industry, food processing, environmental protection, and energy conversion and storage, among others. Research and development on BPMs over the past two decades have created a growing market with commercial BPMs available today from multiple manufacturers. Moreover, BPMs are rapidly gaining attention for their technical, environmental, and economical advancements compared to conventional processes for the production of acid and base, or local pH control

The company also manufactures castor oil derivatives, fatty acids & consumer products-majorly toilet soaps, chloromethane products and is also into power generation. The plant is certified by ISO 9001, ISO 14001 and OHSAS 18001 system certification.

Thus company has presence across industries such as healthcare products, aqua culture, real estate, pharmaceuticals, industrial chemicals and hospitality.

TGV Sraac is also engaged in power generation for captive and commercial purposes. A unique feature of this division is that both conventional and non-conventional methods have been adopted. Conventional plants for power generation have been set up at various places in the states of Andhra Pradesh and Karnataka.Since Chlor Alkali industry is power intensive the company is taking necessary steps to increase it’s captive power generation. 

Business Products

SRAAC’s activities are closely integrated, with by-products from one process being utilized as raw material for another, allowing the firm to make the most of its huge production capacity. Given a diverse product portfolio, this also shields the corporation against the impacts of cyclicality in demand for its specific items.

Castor Oil Derivatives 

Under castor oil derivatives company manufactures various products such as Hydrogenated Castor Oil , 12-Hydroxy Stearic Acid, Ricinoleic Acid (Liquid),  Refined Castor Oil, Methyl 12 Hydroxy Stearate, Sodium Sulphate,  Castor (Ricinoleic) Methyl Ester etc. These products have wide array of applications some of which are as follows-: 

• Wax Formulations like pencils, crayons and polishes
• Cosmetics and toiletries like lipsticks and antiperspirant sticks. 
• Processing aid for rubber and plastics.
• Metal drawing lubricants.
• Packing, sealants, castings and coatings.
• Source of 12-Hydroxy Stearic Acid
• Transparent soaps and high solids liquid soaps.
• Dispersion of pigments and dyes.
• Fibers and textiles and many more.

Chlor-alkali products

These items are essential raw materials for large bulk chemical industries, as well as being used in a variety of industrial and manufacturing value chains. The products are utilized in a variety of applications, including plastics, alumina, paper & pulp, and others, and are employed in a variety of end-use industries (construction, automotive, and others). As a result, increased chemical output and favorable economic circumstances in emerging markets are likely to propel the chlor-alkali industry forward. 

Various products manufactured by the company under this category include Caustic Soda (Lye/Flakes,Liquid Chlorine, Hydrochloric Acid (Gas / Liquid), Caustic Potash (Lye/Flakes), Sodium Hypochlorite (Liquid),Barium Sulphate (Precipitated powder), Hydrogen Gas, Potassium Carbonate. 

Various applications of these products are as under -:

• Aluminum,Paper,Pulp,Pharmacy,Soaps,Textilesandl Rayon Industries.
• Dyes, Pharmaceutials, Food, Liquid Fertilizers and Potassium Compounds.
• Water Treatment and Paper 
• OSIN Manufacturing, Bone Washing and General Chemicals
• Hydrogenation of vegetable oils.
• Manufacturing of Liquid Glucose, Reducing agent in metallurgy and pharmaceutical industries.
• Manufacturing of Tungsten components, incandescent lamps.
• Water Treatment, Textiles processing, Paper and Pulp products.
• Storage Batteries, Paints and Adhesives
• TV Picture, Pharma, Dyes, Food additives etc.
• Disinfecting and deodorizing purpose, Effluents control in wastes containing cyanide, Bleaching of cotton yam cotton cloth and hemp in textile industry, Bleaching stain removal & disinfection of cotton clothing in laundries home and hospitals, Disinfection in water treatment and Sewage disposal, Controlling of Mosquitoes through! Eradication or mosquito larvae in drain Gutters, ponds etc.,Disinfection,de-odorizing and bleaching of residential premises, swimming pools, public’ conveniences etc

Fatty Acids

Fatty acids are usually produced industrially by the hydrolysis of triglycerides, with the removal of glycerol. Some fatty acids are produced synthetically by hydrocarboxylation of alkenes. Glycerine  is a colourless, odourless, viscous liquid that is sweet-tasting and non-toxic. Due to having antimicrobial and antiviral properties it is widely used in FDA approved wound and burn treatments. Various applications of the chemicals produced under this category include -:

• Drugs, Personal Care, Foods and Beverages, Polyether Polyols, Alkyd resigns (plastics) and cellophane, Absolute alcohol.
• Used in Candle making, Wax formulations, Adhesives, used as lubricant, mold release and substitute paraffin wax, tarpaulin waxing, waterproofing agent, polishing agent, boat waxing

Chloromethane

Chloromethane is a naturally occurring gas that is mostly utilized in the production of silicones, but has also been employed as a refrigerant and anesthetic in the past. Various products manufactured under this category are Methyl Chloride, Methylene Chloride, Chloroform, Carbon Tetra Chloride etc which has vast applications such as-:

• Used in the Pharmaceutical sector  
• Used in production of Fluoropolymers 
• Used in the Manufacture of Silicone Greases Manufacture of Methyl Cellulose esters Manufacture of Butyl Rubber etc

Power Generation

Initially it has installed two D G sets with a total capacity of 12.4 MW for optimum utilisation of installed capacity. The company has also produces 3MW of power from it’s Wind power farm set up at a cost of Rs.11.20 part financed by IREDA to the tune of 8.37 Crores. The company has set up a power plant at Bellary with a capacity to produce 37.8 MW of power for commercial. The Bellary plant started commercial operation in Oct 2000.

Under the aegis of TGV SRAAC LIMITED (formerly Sree Rayalaseema Alkalies and Allied Chemicals Ltd.), two captive diesel generator plants of 7.2 MW and 24.8 MW, and a captive multi-fuel(co-generation) plant of 10 MW capacity have been installed at Kurnool.A commercial diesel generator plant of 38 MW has also come up at Bellary in Karnataka.

The conglomerate has successfully established non-conventional energy plants. Windmill farms of 6.3 MW and 2 MW capacity have come up at Ramagiri, promoted by TGV SRAAC LIMITED (formerly Sree Rayalaseema Alkalies and Allied Chemicals Ltd.) and Sree Rayalaseema Hi-strength Hypo Ltd., respectively.

TGV SRAAC LIMITED is also a promoter-member of AP Gas Power Corporation Limited’s 272 MW gas power station at Vijeswaram.

Kurnool Power Projects and Vasistha Power Projects are implementing 30 MW plants at Kakinada. With such an illustrious experience backing it, the conglomerate is today planning rapid forays into the power sector with an investment of over Rs. 600 crores/USD 133 million in the ensuing three years.

The company, during the FY 2021 has made an investment in the equity of AP Gas Power Corporaon Limited, a Capve Power generator for an addional share of 31.60 MW. This investment will help in saving in power cost substantially.

Aditionally in March 2022 company said its board has approved setting up another 10 MW solar power plant at a total cost of around Rs 37 crore. The latest approval was in addition to the previous approvals. Earlier this year, the company’s board approved setting up 15 MW (in aggregate) solar power plant installation.

The caustic soda business consumes a lot of energy. In FY18-20, power costs accounted for 40-47 percent of cost of sales and 35-40 percent of gross sales (FY18-20). For electrolysis of brine, electricity is employed directly in the manufacturing process (salt solution – the raw material).

According to our estimates, the firm could save roughly 20 to 30 crores per year from the above-guaranteed supply of power at a lower rate than what they currently pay, resulting in a 2 to 4 Rs rise in EPS.

Capex

In 2021 Company has incurred an amount of Rs.125.54 Cr towards modernizaon, Chloromethanes expansion works and normal capital expenditure. The funds required for the above is met from Banks and internal accruals.

Financials

For Q4FY22

• Net Sales stood at Rs 534.41 crore in March 2022 up 110.1% from Rs. 254.36 crore in March 2021.
• Quarterly Net Profit stood at Rs. 68.40 crore in March 2022 up 2786.08% from Rs. 2.37 crore in March 2021.
• EBITDA stood at Rs. 137.51 crore in March 2022 up 285.72% from Rs. 35.65 crore in March 2021.
• TGV Sraac EPS had increased to Rs. 6.39 in March 2022 from Rs. 0.22 in March 2021.

For the year Ended March 2022

• Net Sales stood at Rs 1,525 crore in March 2022 up 51% from Rs. 1,009 crore in March 2021.
• Net Profit stood at Rs. 134 crore in March 2022 up 362% from Rs. 29 crore in March 2021.
• EBITDA stood at Rs. 317 crore in March 2022 up 112% from Rs. 149 crore in March 2021.
• TGV Sraac EPS had increased to Rs. 12.53 in March 2022 up 360% from Rs. 2.70 in March 2021.
• Compounded Profit Growth over 3 and 5 year period stood at 20% and 52% respectively.
• ROCE increased from 9% in March 21 to 22% in March 22 on account of increasing Operations margins and various cost reduction steps taken by the company.
• Company reduced debt of about 71 crs in Fy22.
• Company had additionally purchased fixed assets worth 138 crs in Fy 22. However clear bifurcation of the amount spent on capex was not available, therefore more details about it would be available in the company annual report.

India Caustic Soda Market is Anticipated to Grow at a CAGR of 6.54% by FY2035 ~ ChemAnalyst

Due to rising demand from Chemical Industries, Alumina, Soap & Detergents, Paper & Pulp, Textile, Metal Processing, and Various Others such as Bleach processing, Chemical processing, Petroleum, and others, the Caustic Soda market in India reached 3.74 million tons in FY2021 and is expected to grow at a healthy CAGR of 6.54 percent until FY2035.

In the short term, the prognosis for the domestic chlor-alkali sector is expected to remain stable, owing to consistent demand from end-use industries such as aluminum, pharmaceuticals, agrochemicals, and organic chemicals. The industry’s profitability had improved dramatically, owing to greater sales realization of caustic soda products as a result of supply cuts from China and Europe due to stronger environmental regulations, which had resulted in the closure of certain factories in those countries.

Conclusion

Since its beginning in 1981, the firm has a longstanding and established manufacturing track record of more than three decades in chemical manufacture. SRAAC has built long-term relationships with over 200 clients throughout the years. The company’s products are used in a wide range of sectors, including textiles, pulp and paper, alumina, soaps and detergents, petroleum, fertilizers, medicines, agrochemicals, and water treatment, among others. Additionally, caustic soda is utilized internally for the manufacturing of castor oil, soap noodles, and the operation of chloromethane. In addition, SRAAC benefits from the synergies created by the existence of group enterprises. For example, SRAAC obtains some raw materials from its group entities and off-takes some completed goods from group concerns.

Additionally recent announcements made by the board for setting up solar power plant for captive use of electricity could be very beneficial for the company. The stock price of the company has increased 266% by making all time high of 110 Rs before filing to current levels. Decreasing debt and increasing sales coupled with increasing margins and increasing net profit make this company worth exploring.

Note-: As increased volatility is expected in the coming weeks based on the various news flowing in the market. Also We do not provide any recommendations, entry-exit or target prices. In such situations if the stock corrects, we will use recommended price as the price 10%-15%(at max) below the current market price or the price till which the stock has corrected from the current levels limiting to 10-15% downside from the date of publishing this report to track the performance of the idea suggested. Therefore users are requested to not put query regarding this that why are we using less price to track our performance or we are trying to mislead users about our performance.

For example if stock falls to 50 Rs we will use 60 Rs as the recommended price or if the stock falls to 68 Rs then we will use 68Rs as the recommended price. The reason for this would be explained later.