Asahi Songwon

Asahi Songwon Colors Limited (ASCL) is a Gujarat based manufacturer of pigments and dyes. ASCL manufactures CPC Green, CPC Blue, Beta blue (derivative product of CPC Blue) pigments. The company has its manufacturing plants based at Mehsana and Vadodara. The company, for Q1FY14, showed a 11% (YoY) rise in net sales at Rs.68 crore yet it ended the quarter with a 43% drop in net profit at Rs.3 crore. Its OPM has slipped from 17.51% to 11.54% and NOM has dropped from 8.99% to 4.64%. The spoke in the wheel has been its raw material cost, which has risen 19% (YoY) and sequentially, it has risen 65%. Its key raw materials are Phthalic Anhydride, and Cuprous Chloride. Pthalic Anhydride is a petroleum-based product and hence its prices behave in line with the crude prices. The other raw material, cuprous chloride is imported thus there has been a double whammy for the company – rising crude and falling rupee. The trend is worse in Q2 and going ahead we could see the effect of this on its performance too. Margins are thus likely to remain under pressure.

This company manufactures pigments for the chemical industry and it supplies to leading companies like BASF, Clariant. It has two plants, one at Baroda and one near Ahmedabad. As at 30^th June 2013, promoters hold 61.48% and interestingly, Clariant Chemicals holds 5.86% in the company. Another Japanese company, Dainippon Ink & Chemicals Corporation is its client and it also holds 7.05% stake in the company. Asahi derives more that 90% of its total revenue from overseas market and thus fluctuation in foreign exchange, increasing raw material prices, rising price of crude remain major threats to the company.