Oriental Carbon and Chemicals Limited (OCCL), a company belonging to the Duncan JP Goenka Group of Companies is one of the is one of the market leaders in the production of Insoluble Sulphur for the Tyre and Rubber industry around the world. Insoluble Sulphur is mainly used in the automotive tyre industry. The company is also in the production of Sulphuric Acid. Current Annual Capacity stands at 23,000 MT in case of Insoluble Sulphur and 46,000 MT in case of Sulphuric Acid.
- Insoluble Sulphur’s requirement is increasing at a very fast pace in Asia.
- An increase in rate of radialization in commercial vehicles in India will lead to an increase in requirement of Insoluble Sulphur.
- OCCL plans to shift to 100% production of high stability, high dispersion & special grades of Insoluble Sulphur which will help it to improve margins further.
- Moat- Minimum 24 months are required by customers (mainly tyre companies) to approve & validate product from new supplier. This will ensure that customers will stay with OCCL for long periods.
- OCCL already deals with all the major tyre companies including Continental, Bridgestone, Ceat, JK Tyre, MRF, Apollo, Good Year, Birla Tyres, Pirelli, etc.
- Planned capacity expansion (Insoluble Sulphur) by 11,000 MT by year 2018 at an outlay of INR 159 Cr.
- Increasing dividend payout over the years.
- 10 year revenue CAGR of 21% and 10 year pat CAGR of 41%! Healthy PAT margins of over 20% in Dec 2015 Quarter.
At current market price of around Rs. 473, OCCL is available at a trailing PE of around 8.50. Cheap!
I refrain from giving any targets for this stock. Sky is the limit, hold for long term.