Dynemic Products is the manufacturer, marketer and exporter of food color and dye intermediaries. Company offers food colors used in food products, beverages, animal feeds, bakery, and dairy products.
Dynemic colors also manufactures dye intermediaries which is used in printing ink cartridges, roller ball pens. Dynemic Products is among the largest manufacturers of food colors in India and also exports its products to more than 45 countries around the world.
The industry in which the company is operating is largely an oligopolistic market where only few players are catering to the entire industry. The reason behind so few players operating is because this industry is highly regulated by the Government bodies and has strict regulations to ensure quality standards. With this high barrier to entry, there is a slim chance of new players entering in the market, which simply means that company will enjoy its oligopolistic position for a long time to come.
Let us now look at the past financial performance of the company in detail:
Company’s revenue can be broken up in three categories, Food colors, due intermediaries, and exports. Out of these three categories, food color contributes the most to the companys revenue, about 67%. The second biggest contributor of company’s revenues is dye intermediaries, which contributes about 28% to the companys revenue. Exports contributes about 2% to the company’s revenue, and rest is contributed by other activities.
In the past 5 years, companys sales have seen a stellar growth of 11.58% CAGR. From sales of Rs. 85.76 crores in 2013, Dynemic products sales have grown to Rs. 148.39 crores in 2017.
Dynemic Products net profit has also seen a good growth of 25.42% CAGR in the past 5 years, from Net profit of Rs. 4.33 crores in 2013, company posted a net profit of Rs. 13.44 crores in 2017. Although there have been some years where profits were lower than previous years, but since the companys margins depend on the price of raw materials, any spike in raw material price can hit the profitability of the company. Since the companys management has ample experience of running the business, they have now gained many strategies that help them in minimizing the impact of such price rise.
Revenue from operations is a measure of how much revenue a company is generating from its core business. Revenue from operations does not include income from non operating activities such as sales of assets, sale of subsidiaries, income from investments made etc. Revenue from operations/share measures how much revenue a company is generating from its core business on per share basis.
Dynemic Products revenue from operations grew at 11.58% CAGR, from Rs. 75.7 per share in 2013 to Rs. 130.99 per share in 2017.
Basic EPS is a measure of how much profit a company is making on per share basis. In other words, it’s a measure of how much money each share of the company will receive if all the profits earned during the year is distributed to its shareholders.
Companys basic EPS has seen a ?growth of 24.51% CAGR in the past 5 years. From EPS of 3.83 per share in 2013, company has posted an EPS of 11.86 per share in 2017.
Net Profit Margin:
Net Profit margin is the key ratio which is used to compare profitability of two or more companies working in the same sector. Net profit margin is a measure of how much percentage of total sales remains with the company as profit after all the expenses are paid.
Dynemic Products Net Profit Margins have improved significantly in the past 5 years, from 5.05% in 2013 to 9.025% in 2017, a CAGR growth of 12.38% per annum.
ROCE or Return on Capital Employed, is a measure of how efficiently the capital of a company is being used to generate profit. ROCE is expressed in percentage terms. A company with ROCE of 20% means out of every 100 rupees employed as capital, company is able to make a return of rupees 20.
Dynemic Products ROCE has also seen significant improvement in the past ?5 years, from 9.41% in 2013, to 16.89% in 2017. A CAGR growth of 12.41%
Debt to equity ratio tells us how much of the total financing of the company comes from creditors (those who lend money at an interest) and investors (those who invest in the shares of a company). Higher debt to equity ratios is an indication that majority of company is financed by loans and other debt (such as debentures and bonds)
Company has pared down its debt in the past 5 years, companys debt to equity ratio improved from 0.51 in 2013 to 0.3 in 2017.
Dividend per share is the amount of dividends a shareholder receives on per share basis. Dividend per share includes all the interim dividends paid during the financial year as well as the final dividend paid at the end of the financial year. Dividend per share is calculated by dividing total dividends paid during the year from total number of shares outstanding.
Company has been paying decent dividend of Rs. 1.5 per share for the past 5 years, except year 2015, where company did not pay any dividends.
Future Plans of Dynemic Products:
Dynemic Products is planning to expand its production capacity, for which company has bought land in dahej, as per annual report of the company,is waiting for environmental clearances in order to start manufacturing facility in the place.
SWOT analysis of Dynemic Products:
Company is one of the few organized listed players in the market, and is one of the leaders in this niche market.
Company has a long history and experience of managing the business, and management is aware of the details of running the business.
Company’s revenue largely contributed by the business of food colors, which is a business risk. Company should diversify its product portfolio and de-risk its business by generating other sources of revenue. Also, since company also exports its products to more than 45 countries, its business is exposed to foreign currency fluctuations.
With rising disposable income in the urban and semi urban middle class consumers, there is a huge surge in demand for readymade food, easy to prepare cooking aides and many other products. Most of these semi-cooked foods use food colors to make the food tasty and pleasant. With rising consumer demand, there will be rise in demand for food colors, which will ultimately benefit the business of Dynemic Products.
As mentioned earlier, the sector in which Dynemic Product operates, is highly regulated and has to comply to high standards of quality. Because of this, company has to go through immense research and development before launching a product. Also, there is always a long gestation period before regulators approve the product as safe for consumption.
Secondly, since the business of Dynemic Products is capital intensive, expanding business requires lot of capital to set up manufacturing facilities, environmental clearances, and procurement of raw materials etc. Because of this, the capital invested in new project remains stuck for a long period of time, which may hurt companys return on investments.
Should I Buy Dynemic Products At Current Levels?
To find the right level of entering and exit in Dynemic Products, it is important to analyze it from both technical and fundamental point of view:
The stock has seen a huge rally since September, fro a price of around Rs. 105 to about Rs. 193, which it is currently trading at. The stock may see some correction and cool down to Rs. 170 per share in the near future, but has good upside potential in the long term.
For valuation of the company on a fundamental basis, the easiest and the most effective way is to compare companys P/E to the average P/E of the industry. Dynemic Products is currently trading at a P/E of 14.4 while the average Industry P/E is at 21.2. This shows, that despite an upswing in the price, the stock still has potential to move up in the ?medium to long term.
If you are short term investor and want to invest in Dynemic, better wait for a small correction and enter the stock around 180 or so. There will be some volatility in the stock price, but in the next 3 to 6 months, investors may get a return of about 10-15%.
If you are a long term investor with an investment horizon of more than one year, you can enter the stock with a small position and then add more on every dip in price. In the long term the stock will prove to be a multibagger with more than 30-40% return on investment.