Treading with caution

Himadri Speciality Chemical promoters sell shares worth ₹614 million 

It is not raining gold for Himadri Speciality Chemical (HSCL), one of India’s largest integrated speciality carbon companies. In Q2FY21, the company posted revenue of Rs.3.89 billion, a 20% decline from Rs.4.87 billion in Q2FY20. Post tax profit for the quarter came in at Rs.161.8 million, recording 68% decline from Rs.505.1 million in the year-ago period. For H1FY21, the company’s revenue stood at Rs.6.47 billion against Rs.10.11 billion recorded in the first half of last fiscal.

 The stock has also seen better days. In January 2018, it hit an all-time high of Rs.188 and currently, it trades at Rs.43. While it has bounced back from its 52-week low of Rs.27, promoters do not seem too enthused. Within a week of company’s Q2 results announcement, promoters offloaded shares worth Rs.614.21 million, reducing the promoter holding from 48.90% to 45.42%. The biggest chunk, worth Rs.333.5 million, has been offloaded by Himadri Credit and Finance, which has HSCL CEO Anurag Choudhary on its board.

Shyam Sundar Choudhary, another member of the founding team and an executive director at the company, has sold his entire personal holding. After a stake sale worth Rs.144.3 million, his holding now stands at 0%, from the earlier 0.77%. Insiders Sushila Choudhary, Saroj Choudhary and Kanta Choudhary have also offloaded their entire holding. Earlier, CFO Kamlesh Agarwal had sold 45,000 of the 46,400 shares held by him.

Established in 1990, HSCL has transformed from a coal tar pitch manufacturing company to an integrated specialty carbon player and is now a supplier to aluminium, graphite electrode and tyres (automobile) manufacturers.

While the speciality chemicals sector in India is expected to grow, with analysts at Nirmal Bang Institutional Equities expecting it to grow at 12% CAGR till 2025, HSCL’s subsidiaries in Hong Kong (AAT Global ) and China (Shandong Dawn Himadri Chemical Industry) are lagging. In its Q1FY21 investor presentation, the company mentioned, “There has been shortfall in the business performance of both AAT and SDHCIL compared with budgets and further changes in the technology, market, economic environment had adverse impact on the value of the investments and recoverability of loans and advances given.”

In April, an ICICI Direct update downgraded the stock from ‘Buy’ to ‘Hold’ with a target price of Rs.50. “With the muted demand prospects in user industries along with incremental capacities in market place, margins are under pressure,” mentioned the report. It also added that the delay on the company’s part in venturing into new-age technological products like speciality carbon black (used in paints, plastics) and advance carbon material (used in electric cells/ lithium-ion battery) has led to the de-rating of the stock.

Between June 2020 and September 2020, mutual funds have kept their stake unchanged at 2.19%. However, FIIs have reduced their holding from 0.89% to 0.68%. According to analysts at Edelweiss Research, the specialty chemicals industry stands to gain in the current scenario with most global players looking for alternative supply sources to China. It remains to be seen if HSCL can capitalise on this opportunity.