Midcap Mania: Dharamsi Morarji Chemical is expanding to drive future growth

The chemicals produced by DMCC finds its end use in various processes and industries like textile processing, dyes and pigments, pharmaceuticals intermediates, fertilisers and cosmetics.

The company had a strong FY19 so far, but H2FY19 may not be as strong owing to a maintenance shutdown in H2FY19. For the first time in past 17 years, DMCC paid dividends and had a very strong Q1FY19 and Q2FY19.

However, investors must be cautious on extrapolating H1 to H2 as it has undertaken a shutdown of the plant from the third week of November 2018 for approximately one month. This shutdown is done almost one and a half year.

The reasons for strong results in H1FY19 include spike in sulphuric acid prices, amalgamation of Borax Morarji with the listed company and ramping up of specialty chemicals business. The merger of Borax Morarji was done after the plant at Maharashtra’s Roha was running at its peak and looking at its large customer base in Gujarat.

DMCC has debt of approximately Rs 20 crore, but it will incur capex to the tune of Rs 50 crore for its Dahej sulphuric acid plant in Gujarat, which will lay foundation for its expansion into downstream products. On commissioning of Dahej plant, DMCC can generate sales of more than Rs 70 crore.

Going ahead, investors need to track sustainability of the spread on sulphuric acid sales, increase in specialty chemicals sales and commissioning of Dahej plant.