Dynemic Products Ltd. is a micro-cap company that manufactures food colours and dye intermediates for food colours. Dynemic Products Ltd is based out of Gujarat with plants in Ankleshwar and Dahej.
We think Dynemic Products Ltd. is interesting at this point of time because there are early signs of demand revival in the food colour and dye intermediates industry. Starting in Q4 FY24, Dynemic Products Ltd. has posted 3 consecutive quarters of strong YoY revenue growth with early teens EBITDA margins. There is significant operating and financial leverage sitting on the books of Dynemic Products Ltd which should result in a disproportionate growth in EBITDA and PAT once revenues inch up higher.
Dynemic Products Ltd Company Summary
Dynemic Products Ltd. was established in 1990 as a private limited company by Mr. Bhagwandas Patel and Mr. Dashrathbhai Patel. Dynemic Products Ltd became a public limited company in 1993 and was listed on the BSE stock exchange in 2006. Dynemic Products Ltd. started its journey by making pyrazolone-based dye intermediates before taking a big leap forward by starting to manufacture synthetic food colours in 1996. In 2000, a dedicated facility for synthetic food colour manufacturing was started by Dynemic Products Ltd in Ankleshwar. After operating with 2 plants for a couple of decades, Dynemic Products Ltd. expanded its capacities in a big way by commissioning the Dahej Plant in two phases in 2021 and 2022. With the commissioning of the Dahej Plant, Dynemic Products Ltd. became one of the largest manufacturers of synthetic food colours in India and the world.
Dynemic Products Ltd Management Details
Founder and managing director, Bhagwandas Kalidas Patel has more than 30 years of industrial experience with a deep understanding of the industry. Bhagwandas Kalidas Patel son Dixit B Patel (Whole time director) is also part of business for the last several years. Further, Dynemic Products Ltd is managed by a team of experienced personnel having operational and business development experience.
Dynemic Products Ltd – Industry Overview
Food colours Industry
Food colours are used in food to increase the visual appeal of food items to make them more attractive for consumers. In some cases, they are also used to emphasize the taste of a certain food item, such as strawberry or orange. And in some cases they are used to bring consistency to the appearance of food items which otherwise would not be consistently coloured in their ordinary form. The usage of food colours in the global economy has increased over the last few decades due to an increase in the propensity of people to eat food cooked outside their homes in restaurants, cafes or shops.
There are two types of food colours used in the industry.
- Synthetic food colours – Synthetic food colours are made using chemical dye intermediates, which are organic chemicals usually derived from petrochemicals. Synthetic food colours are cheaper to make compared to natural food colours and provide more uniform and consistent colouring along with better stability. However, synthetic food colours have come under scrutiny for perceived health effects in children, and some synthetic food colours have even been identified to be carcinogenic in higher than recommended quantities.
- Natural food colours – Natural food colours are made by processing pigments derived from plant, animal or mineral sources. Examples of natural colours are curcumin, a yellow-coloured pigment derived from turmeric; annatto, an orange-red coloured pigment derived from the seeds of the achiote tree; phycocyanin, a blue-coloured pigment derived from the spirulina algae or betanin, a red-purple pigment derived from the beetroot. These naturally occurring chemicals require fewer processing steps with safe chemicals and stabilizing agents to convert them into food colours. While these natural food colours are safe, they are also much costlier than synthetic food colours, often as much as 5-10x. Natural food colours are also not as stable or vibrant as synthetic food colours.
Over the last couple of decades, there has been a noticeable shift in consumer behaviour towards natural colours, especially in developed economies. This has been primarily driven by health concerns and a movement towards less processed, organic foods. Regulatory bodies in Europe and the USA have also facilitated this shift by banning several synthetic food colours and, in the case of Europe, mandating warning labels on food items containing approved synthetic food colours. An example of a warning label is shown below. The label warns that synthetic food colours such as tartrazine and Allura red “may cause adverse effects on the activity and attention of children.
The current size of the global food colours market is difficult to estimate with various reports claiming the market size to vary between 3.2-4.5 bn USD in 2024. The overall market is expected to grow at a CAGR of 6-7% between 2024-2031, reaching a size of 5-7 bn USD by 2031. About 35-45% of the current market is estimated to be that of natural food colours with the rest belonging to synthetic food colours. Natural food colours are certainly growing at a faster CAGR than synthetic food colours as more and more people and countries start adopting natural food colours ahead of synthetic food colours.
However, in spite of this shift, the synthetic food colours market continues to grow and might reach a size of 2.5-3 bn USD by the turn of this decade. The much cheaper cost of synthetic food colours and their stability and vibrancy mean that they are likely to continue to exist and grow for a few more years in emerging markets such as Asia Pacific, Latin America and Africa.
Several large global players have transitioned their portfolios towards natural food colours in recent years, such as CHR Hansen, Givaudan, Dohler, Roha Group, ADM, etc. This transition has vacated the global space for synthetic food colour manufacturers in India, such as Dynemic Products Ltd. and Vidhi Specialty Food Ingredients Ltd. Apart from Sensient Technologies of the USA, there remain very few large manufacturers of synthetic food colours in the USA and Europe.
Dye Intermediates Industry
Dye intermediates are organic chemicals, usually derived from petrochemicals, used to manufacture dyes and pigments that impart colour to a variety of substrates, such as textiles, plastics, inks, food, cosmetics, pharma, etc. The global dye intermediates industry is estimated to be ~8-9 bn USD in size and growing at a CAGR of ~5-6%.
The industry is globally dominated by Chinese and Indian companies owing to their easy access to raw materials, well-developed supply chains and low labour costs. China is by far the leading country in manufacturing dye intermediates, followed by India. The largest global players in the industry are Jiangsu Shenxin Dyestuff and Chemicals, Anhui Bayi Chemical Industry, Lonsen, Dystar and Atul Ltd. The largest players in India are Atul Ltd., Kiri Industries, Bodal Chemicals, etc.
The industry is much more fragmented compared to the food colour industry, and there is high competition amongst players as products are largely on the commodity side.
Dynemic Products Ltd Business Segments
Dynemic Products Ltd. essentially functions across two product segments.
- Synthetic Food Colours – Dynemic Products Ltd. is a manufacturer of synthetic food colours. Dynemic’s product portfolio includes water-soluble synthetic food colours, fat-soluble synthetic food colours, FDA-approved synthetic colours for drugs and cosmetics and also a very limited selection of natural food colours.
- Dye intermediates (primarily used in food colours) – Dynamics Products Ltd. manufactures dye intermediates such as pyrazolone-based chemicals and naphthalene-based chemicals, which are primarily used to make synthetic food colours.
Synthetic Food colours
Dynemic Products Ltd. has a total annual manufacturing capacity of ~6100 MT of synthetic food colour. Till 2021, Dynemic Product Ltd.’s synthetic food colour capacity used to be ~3000 MT, but it doubled after the commercialization of Phase 1 of Dahej plant. Dynemic Products Ltd. manufactures various kinds of synthetic food colours. Let’s take a look at their product portfolio.
- Primary food colours – These are water-soluble food colours which are used extensively across various food items such as beverages, candies, confectionery, snacks, dairy products, etc.
- Lake colours – Lake colours are dispersible in vegetable oil and can be mixed with fats, oils, etc. They can also be dispersed in a suspension of propylene glycol or sucrose. Lake colours, being relatively inert absorption compounds, are very adaptable and versatile. Lake colours are more stable than water-soluble colours and are thus widely used in the Cosmetic & Pharmaceutical industries along with the food industry. Dynemic Products Ltd. offers Lake colours in three concentrations – 15-22 %, 23-30%, 31-38%
- Blended colours – Blended colours are nothing but a combination of unique water-soluble colours or unique lake colours to match the desired shades required for various applications. These are customized products, and Dynemic Products Ltd. claims to have the ability to match the exact colour shade requirements of its clients
- FD&C Colours – These are US FDA approved colours which are used for food, drug and cosmetic use cases.
- D&C Colours – These are drug and cosmetic colours which are used for applications such as tablet coatings, compressed tablets, syrups, hard & soft gelatin capsules, toiletries, skin-care products, water-based make-up, lipstick, nail polish, pencil, foundation and lip gloss. These colours are not US FDA-approved.
- Salt-Free dyes – Salt-free dyes are dyes where inorganic salts have been completely removed to suit a specific application. Dynemic Products Ltd. has developed a wide range of salt-free dyes specifically for the Inkjet Industry. Salt-free dyes are manufactured using membrane technology
- Natural Food Colours – Dynemic Products Ltd. also manufactures a few natural food colours in the caramel shade. But this forms an insignificant part of its portfolio. Credible natural food colour manufacturers have a wide portfolio of natural food colours.
Dye intermediates
Dynemic Products Ltd. has a total annual dye intermediates manufacturing capacity of ~16500 MT. Before 2022, Dynemic Products Ltd used to have a dye intermediates manufacturing capacity of ~4400 MT, which nearly quadrupled after the commissioning of Phase 2 of the Dahej plant in 2022. Most of the dye intermediates are used in making food colours while some are also used for other applications such as cosmetics, drugs and inks. The capex towards dye intermediates was done with a view to substitute Chinese imports and backward integrate further into the food colours value chain. Dynemic Products Ltd. manufactures various kinds of dye intermediates.
- Pyarazolone-based dye intermediates – Pyarazolone-based dye intermediates are used in the manufacturing of azo dyes and pigments which have bright red, orange and yellow hues
- Naphthalene-based dye intermediates – Naphthalene-based dye intermediates are made using naphthalene, which is an aromatic hydrocarbon. There are several important naphthalene-based dye intermediates, such as H-acid, J-acid, naphthalene sulphonic acid, etc., which are used in making azo dyes and pigments.
- Other dye intermediates – Dynemic Products Ltd. also makes other dye intermediates, such as variants of sulphanilic acid, benzene, sulphonic acid, etc.
Dynemic Products Ltd Dahej Capex
Dynemic Products Ltd. had purchased land in Dahej for an expansion of food colours and dye intermediates as far back as 2014. However the environmental clearance certificate for the plant got delayed and only came through in 2018. Due to Covid, the construction and commissioning of the plant got further delayed. The plant was finally commissioned in two phases – Phase I for the food colours unit in July 2021 and Phase II for the dye intermediates unit in Jan 2022.
The total cost of commissioning the two units was ₹243 Cr – ₹150 Cr for commissioning a capacity of 2760 MT of synthetic food colours and ₹93 Cr for commissioning a capacity of 12144 MT for dye intermediates. The final cost of commissioning of ₹243 Cr was a significant increase over earlier budgeted figures which were closer to ₹160 Cr. The exact reasons for cost escalation are not known, although the significant delay in commissioning due to EC and Covid could be a contributing factor.
The intent behind doubling the capacity of synthetic food colours was to capitalize on global companies vacating the synthetic food colour space to move towards natural food colours. This has played out as envisaged by Dynemic Products Ltd to an extent, with FY23 sales volumes of synthetic food colours being about 4000 MT.
The intent behind quadrupling the dye intermediates capacity was to backwards integrate into the food colours value chain and reduce dependency on China, which was supplying most of the dye intermediates. Management’s plan was to consume 40-45% of the expanded dye intermediates capacity internally for making synthetic food colours and to sell the remaining 55-60% in the domestic market. This was a risky decision as dye intermediates are a commoditized industry with no dearth of supply. This decision has so far not worked out, with external facing sales of dye intermediates only amounting to ~1400 MT in FY23 against a capacity of ~13000 MT, leading to gross underutilization of that capacity.
Dynemic Products Ltd Corporate governance
Board Composition – The Dynemic Products Ltd. board comprises 6 Directors, with 3 Independent Directors, meeting the requirement of at least 50% of Directors being independent.
Promoter Remuneration – The total remuneration drawn by Dynemic Products Ltd promoters and their related parties (relatives and enterprises over which promoters exercise control) in the form of salaries and rent amounted to ₹3.4Cr in FY24. This amounted to ~91% of the PAT of Dynemic Products Ltd for FY24. The % figure seems abnormally high due to the depressed PAT figure for the year. On a YoY basis, promoter remuneration increased by ~14%
Related Party Transactions – There were no significant related party transactions for Dynemic Products Ltd. in FY24 except for loans worth ₹2.75 Cr extended by promoters to the company against which the company paid an interest of ₹14.35 Lakhs, amounting to an interest rate of 5.2% per annum, which is quite reasonable. The loan balance outstanding for the company in favour of promoters is ₹1.9Cr as of FY24.
Contingent Liabilities – The total contingent liabilities for Dynemic Products Ltd on account of claims not acknowledged as debt amounted to ₹1.13 Cr, which is < 0.5% of the net worth of Dynemic Products Ltd and hence not material.
Dynemic Products Ltd Financial Performance
Over the last 8 years of its operations, Dynemic Products Ltd. has seen fairly steady numbers except for the last 2-3 years. From FY17-FY21, Dynemic Products Ltd.’s revenues grew at a CAGR of 12.4%, and its PAT grew at a CAGR of 18.9%. During this 5-year period, Dynemic Products Ltd. reported an average ROE of 18.1% and an ROCE of 20.4%. By all accounts, this was a solid performance from Dynemic Products Ltd.
However, things have gone south since FY21. Between FY21-FY24, Dynemic Products Ltd.’s revenues have grown by a CAGR of 11.3% while PAT has severely de-grown by a CAGR of 48%. The average ROE and ROCE during the last 3 years have also collapsed to 2.9% and 6.1%, respectively.
This dire turn in performance has been a combined result of the food colour and dye intermediates market taking a turn for the worse from FY22, while Dynemic Products Ltd’s large capex in Dahej also came online in FY22. Muted demand and expanded capacity meant huge operating deleverage coupled with a high depreciation expense, causing PAT to crash for Dynemic Products Ltd
Dynemic Products Ltd Working capital, Debt and cash flow Analysis
Amidst the doom and gloom, one silver lining has been Dynemic Products Ltd’s ability to improve its working capital cycle from 120+ days pre-Covid to ~70 days over the last 3 years. Cash flow from operations has also been healthy, with an average CFO/EBITDA ratio of 91% over the last 3 years. This cash flow generation, coupled with timely equity capital raises, has enabled Dynemic Products Ltd to service debt and interest payments without too much stress through the downturn.
Dynemic Products Ltd – FY23 and FY24 (Tough Years)
FY23 and FY24 were tough years for Dynemic Products Ltd. While revenues grew by 17% in FY23 YoY, margins came under severe pressure primarily due to an increase in power and fuel costs. As a % of revenue, power and fuel costs increased by 450 bps due to the Russia-Ukraine war. Employee and labour costs also increased by a total of 200 bps YoY in FY23, leading to further pressure on margins. Interest costs and depreciation also increased as a % of revenue, leading to further pressure on profit after tax. All these reasons caused Dynemic Products Ltd to report a PAT loss of INR 3 Cr in FY23.
In FY24, revenues fell by 4% YoY as the food colour industry faced inventory destocking and pressure on realizations. The dye intermediates industry was faced with oversupply from China amidst muted demand in Western geographies. While power costs as % revenues stabilized YoY (they were still significantly elevated compared to FY22), Employee and labour costs increased further by 110 bps. However, there was a 220 bps increase in gross margins (presumably due to the backward integration into dye intermediates), which enabled EBITDA margins to recover slightly from 9.8% in FY23 to 11.5% in FY24.
Dynemic Products Ltd Comparative Analysis
To understand Dynemic Products Ltd’s investment potential, we have conducted a comprehensive analysis. This analysis includes comparing Dynamic Products Ltd to its competitors (peer comparison) on various fundamental parameters and Dynemic Products Ltd share performance relative to relevant benchmark and sector indices.
Competition Overview in India and Globally
Apart from Dynemic Products Ltd., which has a synthetic food colour manufacturing capacity of ~6000 MT, the largest synthetic food colour manufacturers in India are Roha Dyechem (Capacity 10000-12000 MT for synthetic food colours), Vidhi Specialty (Capacity 8000 MT for synthetic food colours) and Neelikon (Capacity 2000 MT for synthetic food colours). The largest global synthetic food colour manufacturer is Sensient Technologies of USA which has a capacity in excess of 15000 MT. Dystar Group in Singapore has a capacity of ~3000-5000 MT for synthetic food colours. Most of the other large global manufacturers of Synthetic Food colours, such as CHR Hansen and Givaudan, have vacated the space and moved to natural food colour manufacturing. To capitalize on the space vacated by developed market players, all three major Indian players – Roha Dyechem, Vidhi Specialty Food Ingredients Ltd. and Dynemic Products Ltd. – have added significant food colour capacity in recent years.
Dynemic Products Ltd Peer Comparison
Dynemic Products Ltd.’s closest listed peer in the Indian markets is Vidhi Specialty Food Ingredients Ltd. Vidhi Specialty also manufactures synthetic food colours, but unlike Dynemic Products Ltd., it has not ventured into manufacturing dye intermediates.
From the table, one can see that Vidhi Specialty Ltd. is valued almost 5x as richly as Dynemic Products Ltd. on Price to Sales basis, at present. The difference in valuation is due to the large gulf in return on capital metrics between the two companies and the clean balance sheet of Vidhi Specialty Ltd. While Dynemic Products Ltd. has managed to grow its revenue at a 3Y CAGR of 11%, comfortably ahead of Vidhi Specialty Ltd, Dynemic Product Ltd’s profits have de-grown severely over the last 3 years for reasons already discussed. On the other hand, in spite of a single-digit revenue growth CAGR, Vidhi Specialty Ltd. has managed to grow PAT at a CAGR of ~12% over the last 3 years.
If Dynemic Products Ltd. manages to fill its large unutilized capacities in the coming few quarters, then its margins and return ratios can show a drastic improvement, and its valuation gap with Vidhi Specialty Ltd. is likely to be bridged to some extent.
Dynemic Products Ltd Index Comparison
Dynemic Products Ltd share performance vs S&P BSE Small cap Index as the index benchmark comparison is a fundamental tool for understanding the investment potential and making informed decisions in the context of the broader market
Why You Should Consider Investing in Dynemic Products Ltd?
Dynemic Products Ltd offers some compelling reasons to track closely and to consider investing if one is looking to build positions in the Synthetic Food Colours and Dye intermediates
Likelihood of demand revival in food colours and dye intermediates – Dynemic Products Ltd. faced a tough couple of years in FY23 and FY24 due to end customer destocking and oversupplies in the food colours and dye intermediates industry. There are early signs that the destocking cycle has started to reverse in food colours, so demand may bounce back in the near term. Oversupply from China in dye intermediates is tougher to model, but it’s highly likely that the situation won’t get worse from here on. These market dynamics bode well for Dynemic Products Ltd. in the near term.
Power and fuel costs should go down – Power costs have risen sharply for Dynemic Products Ltd in FY22 and FY23 due to the Russia-Ukraine war and have sustained through FY24. Power and fuel costs as a % of revenue was around 7% before FY22; it has risen to around 14.5-15% since. Power and fuel costs as % of revenue should start coming down now as energy costs have reduced after the spike in FY22 and FY23.
Possibility of operating and financial leverage playing out – Due to the large capacity setup in Dahej, which is currently significantly underutilized (Less than 50% of dye intermediates capacity is being currently utilized, and less than 70% of the food colours capex is currently utilized), there is the possibility of significant operating and financial leverage playing out in Dynemic Products Ltd. if and when demand comes back. Employee costs, power and fuel costs and administrative expenses line items can lead to operating leverage with increasing revenues. Below the EBITDA, depreciation and interest costs should remain flat or decrease as revenues scale up, leading to significant financial leverage.
Valuations don’t seem to be too expensive – At peak capacity utilization, Dynemic Products Ltd. can deliver a revenue of ₹600-650 Cr. At the current market capitalization of ₹530 Cr, Dynemic Products Ltd stock is trading at a price-to-sales ratio of 0.8-0.9x. The 10-year median price-to-sales ratio for Dynemic Products Ltd. has been 1.2x. So valuations are not stretched assuming demand comes back, and they are able to achieve peak capacity utilization in the next 2-3 years. Even if demand comes back slower than anticipated, valuations don’t seem to be such at present that there is a lot to lose for investors.
What are the Risks of Investing in Dynemic Products Ltd?
Investors need to keep the following risks in mind if they choose to invest into this business. Risks needs to be weighed in combination with the advantages listed above to arrive at a decision that is optimal for your portfolio construct
Movement of food colour demand in favour of natural food colours – As discussed in the industry analysis section above, food colour demand is gradually moving away from synthetic food colours towards natural food colours due to health concerns and regulatory reasons. This move is already at a very advanced stage in Europe, the USA and the rest of the Western world and is also picking up pace amongst affluent customers in emerging economies. With time, this trend is sure to intensify even further, although the pace of transition may be gradual. This provides a long-term headwind for Dynemic Products Ltd., which manufactures majorly only synthetic food colours.
Recent capacity expansion in synthetic food colours by all major Indian players – Along with Dynemic Products Ltd., its two other largest competitors in India – Roha Dyechem and Vidhi Specialty Food Ingredients Ltd. – have also significantly enhanced their synthetic food colour capacity in recent years. Between the 3 players, they have added almost 10000-12000 MT capacity of synthetic food colours over the last few years. While the capacity expansion by Indian players has been in response to the global manufacturing capacity of synthetic food colours going down, the sudden increase in domestic capacity can lead to a temporary supply spike.
Oversupply in the dye intermediates market – The dye intermediates market is currently suffering from overcapacity and oversupply due to large capacities built up in China. As global demand has slowed down post the Russia-Ukraine war and inflation concerns and domestic slowdown in China, there has been a supply glut in the market leading to depressed prices and margins in the market. A continuation of this supply overhang can keep margins low for Dynemic Products Ltd. in this segment. Dye intermediates are where Dynemic Products Ltd. has added the most capacity and is thus susceptible to a sustained supply overhang in this segment.
Huge spike in power and fuel costs for Dynemic Products Ltd. – As discussed above, the power and fuel costs line item for Dynemic Products Ltd. has doubled as a % of revenue from ~7% to ~15%. While a temporary spike in FY22 and FY23 was to be expected due to a hike in global energy prices due to the Russia-Ukraine war, the sustained high levels of power and fuel costs, even in FY24 for Dynemic Products Ltd., has been a surprise. It’s not entirely clear why power and fuel costs haven’t come down for Dynemic Products Ltd. in FY24, even as energy costs have come down in the year. Investors need to monitor this line item carefully over the next few quarters and years.
The exit of erstwhile promoter and low promoter holding – One of the erstwhile promoters of Dynemic Products Ltd, Mr Dashrathbhai Patel, whose family owned ~13% stake in Dynemic Products Ltd. in 2017, completely exited his holdings in 2021. The reasons for the same are not clear. Reasons may be personal, and this may not be a risk per se, but it is something to be noted by investors. As a result, the promoter stake in Dynemic Products Ltd. has come down to 29.4%, which is quite low. Any serious intent by the promoters to increase their stake in Dynemic Products Ltd should be seen as a positive sign by investors.
Dynemic Products Ltd Future Outlook
In the first half of FY25, Dynemic Products Ltd. has started to show signs of demand recovery. Sales in H1 FY25 were higher by 33% compared to H1 FY24. EBITDA margins also increased by 240 bps YoY in H1 FY25.
Dynemic Products Ltd Management commentary has also turned slightly more optimistic in Q2 FY25, highlighting an uptick in demand in both product segments.
Dynemic Products Ltd Technical Analysis
We consider technical analysis to be a useful input in taking medium-term investment decisions. Many a time price action tends to lead to fundamental developments; this is too important an aspect to be ignored by retail investors who do not have access to management outside of common forums like investor calls & AGM.
At Congruence Advisers we like to consider both the long-term weekly chart and the daily chart to arrive at a view on price action. Combined with our understanding of fundamentals, we usually end up being better placed to be able to judge both the business cycle and the stock cycle. Playing the stock cycle right is extremely important for investors looking to extract significant alpha over the medium term.
Dynemic Products Ltd Price charts
On weekly charts we can see that Dynemic Products Ltd stock made a high of 670 in April 2022 and then started correcting along with the broader markets as the Russia-Ukraine war started. Dynemic Products Ltd stock corrected for 5 consecutive months and made a bottom in September 2022. From September 2022 to August 2024, almost for a period of 2 years, Dynemic Products Ltd stock consolidated in a broad horizontal channel between the levels of 262 and 405 as results were up and down each quarter. Starting Q4 FY24, for 3 straight quarters Dynemic Products Ltd. has reported good sales growth and that has started reflecting in Dynemic Products Ltd stock price recently. After a nearly 24 month consolidation in the 262-405 range, Dynemic Products Ltd stock saw high volume buying emerge in July 2024 with the price moving up strongly. Since then Dynemic Products Ltd stock crossed the upper band of 405 and then fell back in the horizontal channel and is now consolidating around the upper bound. Continuing strong results with sales growth with margin expansion should help Dynemic Products Ltd stock break out of the consolidation zone conclusively. The next key resistance level to cross after that would be 492.
Dynemic Products Ltd Latest Latest Result, News and Updates
Dynemic Products Ltd Quarterly Results
Dynemic Products Ltd. reported strong quarterly results in Q2 FY25, with revenues growing 50% YoY and 17% QoQ. EBITDA increased by 58% YoY and 25% QoQ, demonstrating some degree of operating leverage. There was also significant financial leverage as interest + depreciation costs fell YoY.
Management has also sounded positive in their quarterly commentary, highlighting the increase in demand in both business segments, and sounded confident about Q3 FY25 being better than Q2 FY25.
Final thoughts on Dynemic Products Ltd
The one message that the market has continuously reinforced since 2021 is that earnings momentum is more important business quality in this phase of the market cycle. The most widely acknowledged and highly valued chemical stories have all underperformed in this cycle while those delivering healthy earnings growth have fared slightly better. While we don’t consider stocks like Dynemic Products Ltd to be of the highest quality, we do believe that this stock has the potential to deliver aggressive earnings growth, if things fall into place on the business front.
In a market where the demand environment is still hazy due to the China factor placing a lid on realization, we would rather bank on simple concepts like operating leverage that can move the needle on earnings. This stock ticks the boxes on many fronts (in this context) – depressed recent earnings history, depressed margin, high operating costs that aren’t being fully absorbed due to low utilization. Once the demand situation improves and healthy volume growth ensues for a few quarters, operating leverage should take care of earnings growth without any substantial improvement in business quality.
We see early evidence that balance sheet deleveraging is already playing out, operating cash flow for H1 FY25 was 15 Cr that helped the business reduce debt by 10 Cr. We expect this trend of debt reduction to continue on the back of healthy operating cash flow generation.
Investors will need to see this stock as a tactical, opportunistic play where a positive cycle can improve both the balance sheet quality and the earnings trajectory for a few quarters. Such stocks should ideally be bought close to the point of pessimism and the position is to be lightened once the outlook turns normal and the valuation multiples normalize.
Disclaimer – This note is part of a business research & analysis series on small companies, there is no BUY/SELL recommendation or target price issued as part of this. There is no assurance that this stock makes for a good investment, there is no guarantee that this stock will be included in the coverage universe of Congruence Advisers. The note contains some forward-looking statements and insights drawn from the historical results, annual reports and investor presentations; they are to be viewed only within this context and not as a prediction of future performance of the business or the stock covered.
While due care has been taken to ensure that the information here is as accurate as possible, Congruence Advisers disclaims any liability in case of any unintentional inaccuracies.
The content does not constitute investment advice.
Disclosure (Updated as of Oct 30, 2024) – No position in the stock in personal portfolio
