SOIC Business Updates| Laurus, Pi & Deepak
Hi Investors! Welcome to SOIC! In this Business Analysis video, we'll discuss Deepak Nitrite, Laurus Labs, & Pi Industries, where an interesting development has occurred after 3-4 quarters Before discussing the result analysis, I would like to discuss a Mental Model: Lollapalooza Effect Charlie Munger frequently tells us that whenever different mental models or biases combine, they create the Lollapalooza Effect. When different things combine to create a huge outcome, is known as the Lollapalooza Effect. Similarly, in stock picking if we assess our own portfolio, or of those people who have picked several winners in their portfolio. There's a common pattern observed with the winners, First, Earnings Growth of these companies remains strong. Second, The Margins of such winners (companies) are either expanding or are already high Third, Return On Capital Employed meaning, the returns I earn on the capital invested in a business remains high. Another interesting trend in such businesses either their Sales grow rapidly or their Margins expand a lot In good businesses we observe both seeming good, the sales grow & the Margins also expand.
Another interesting Mental Model that is applicable here is: most of the times such companies, if we attempt to change our perspective, most of the times these companies are consistently hitting 52 week highs. The Price Volume Action in these businesses also remains on the long-term charts. In terms of Fundamentals and business wise, these companies have mega-trends solid Moats, competitive advantages, & the management also executes really well. At the same time those observe the Technical Chart, we don't do that, eventually we've observed within our own portfolio that our business was to buy as business analyst All of a sudden the businesses that we're buying, their Price Volume Action has been good the ups are backed by Volume Many renowned investors are also now investing in those businesses. Let's apply the Lollapalooza Effect. Some businesses experience such Structural Uptrends Pi Industries, for e.g. has been on such a Structural Uptrend for the past 14 yrs.
Deepak Nitrite's business is good, & everything is solid, its been on an Uptrend for the past 8 yrs. Similarly, if we talk about similar businesses then Navine Fluorine is an e.g. Astral Pipes, Within such businesses, the business is solid, the sales growth is solid, even in the long-term charts, suddenly these businesses start hitting 52 week highs This is part of the Lollapalooza Effect I believe that you'll definitely find this effect in play.
If you are technical charters, then also you'll observe these trends, & if you're a business analyst like us, technical chart is basically a Lagging Indicator for you. What we're looking for is a strong business, & eventually we find them. With this, we'll discuss some of Deepak Nitrite, Laurus Labs & Pi Industries' interesting results & developments in the businesses. Let's discuss Deepak Nitrite.
There are 4 Divisions in Deepak Nitrite: 1. Basic Chemicals. It was formerly the Bulk Commodity Division but since improving their efficiency, their EBIT Margin from 11.8% in 2016 is presently ~24% in 2021 We'll focus on Q1FY21 Results. 2. Phenolics: they've established a plant for Phenol
If you want to watch our video about Deepak Nitrite, you won't find a more in-depth video because we've done a lot of research on the business including Scuttlebutt. You can watch our video, if you want. The EBIT Margins of Phenolics has been quite volatile. We have data til Q1FY20 but we'll also discuss the Q1FY21 The EBIT Margin went to 10-11% & even 22% They Margin for OBA went to 22%-54% In 2021 & Q1F22, the realisation of OBA has reduced significantly 4. Fine & Speciality Chemicals Division Their Basic Chemical Division acts as a feed stock or raw material for their Fine & Speciality Chemicals Division due to which their Margins for this 4th Division went to 39% & also previously went above 40% This division is also very interesting, & there's a lot of Value Addition here The Result of Deepak Nitrite in Q1FY21, their Phenolics division has shown quarter on quarter growth.
i.e., 5-6% sales quarter on quarter in Phenolics.