RESEARCH REPORT 25th Nov 2024

KRONOX LAB SCIENCES LTD

BSE : KRONOX Sector: SPECIALITY CHEMICALS BSE: 544187

View - BUY
CMP : Rs. 167
Target Price: Rs 240 (In next 12 to 15 mths)

BUSINESS BACKGROUND KEY DATA

FACE VALUE Rs 10.00
Kronox Lab Sciences Ltd (KLSL) was incorporated as 'Kronox Lab Sciences
Pvt. Ltd on November 18, 2008 & manufactures High Purity Speciality Fine
DIVD YIELD % 0.30
Chemicals for diversified end user industries which include pharmaceuticals,
scientific and laboratory research, nutraceuticals, biotech, agrochemicals,
personal care, metallurgy and animal health
52 WK HI/LOW 201/138

KLSL has a aggregate installed capacity of 7,242 TPA, which are situated at NSE CODE KRONOX
Vadodara in Gujarat close to the seaports of Mundra, Kandla, Hazira and
Nhava Sheva BSE CODE KRONOX

INVESTMENT HIGHLIGHTS MARKET CAP RS 617 CRS

Strong Financial Performance for FY24 –

KLSL reported a strong set of FY24 numbers with Total SHAREHOLDING PATTERN
Revenues at Rs 90 crs vs Rs 96 crs last year, as the PROMOTERS - 74%
management stated that it discontinued low margin products
BANKS, MFs & DIIs - 3%
and focussed more on high profitable products which saw the
EBIDTYA at Rs 28 crs from Rs 22 crs last year with the PAT FIIs - %

placed at Rs 21 crs from Rs 18 crs PUBLIC - 23%

KLSL enjoys a niche product base & marquee customers – KEY FUNDAMENTALS

KRONOX manufactures
vScore: vScore High
(Value Score) Purity
is our Speciality
proprietary Fine
company Chemicals
rating system f for YE FY25 FY26 FY27
diversified end user industries. These chemicals are used mainly
as reacting agents and raw material in the manufacturing of Active Income Gr% 22 25 75
Pharmaceutical Ingredients (APIs); excipients in pharmaceutical EBIDTA Gr% 37 25 64
formulations; reagents for scientific research and laboratory
testing; ingredients in nutraceuticals formulations; process PAT Gr% 29 33 55
intermediates and fermenting agents in biotech applications;
EPS (Rs) 7.30 9.73 15.14
ingredients in agrochemical formulations; ingredients in personal
care products; refining agents in metal refineries; & ingredients in ROE % 33 32 36
animal health products
ROCE % 32
Precise 26 31
Advice
Assured… P/E(x) 17 11

Long term Drivers for DHFL look good in view of the follow18
Kronox Lab Sciences Group Profile & its Execution abilities –

Kronox Lab Sciences Ltd (KLSL), was promoted by Jogindersingh Jaswal, Ketan
Ramani & Pritesh Ramani in 2008 at Gujarat for manufacturing high Purity Speciality
Fine Chemicals for diversified end user industries which include pharmaceuticals,
scientific and laboratory research, nutraceuticals, biotech, agrochemicals, personal
care, metallurgy and animal health

Jogindersingh Jaswal is one of the Promoters and is the MD of the Company. He has
been a director of the Company since incorporation. He looks after production, quality
control and human resource activities in the Company. Previously, he worked with
Ranbaxy Laboratories Ltd and Ranbaxy Fine Chemicals Ltd from the year 1994 till
2001. He has over three decades of experience in the chemical industry

Ketan Ramani is one of the Promoters and Whole-time Director of the Company. He
has been a director of the Company since incorporation. He oversees finance,
purchase and administration in the Company. He has over 3 decades of experience in
the chemical industry.

Pritesh Ramani is one of the Promoters and Whole-time Director of the Company. He
looks after sales and marketing in the Company. He has been a director of the
Company since incorporation. He has over 2 decades of experience in the chemical
industry.

KLSL’s Business Model includes –

KLSL manufactures High Purity Speciality Fine Chemicals of various grades in particle
sizes ranging from 10 mesh to 100 mesh. The company’s 185+ products span across
the family of phosphate, sulphate, acetate, chloride, citrate, nitrates, nitrites, carbonate,
EDTA derivatives, hydroxide, succinate, gluconate, among others are supplied to
customers in India and more than 20 countries globally. The products are
manufactured in accordance with industry standards like IP, BP, EP, JP, USP, FCC,
LR, AR, GR and ACS in addition to custom manufacturing specifications required by
customers in select cases
The company has expanded its scale of operations and global footprint across 20
countries which include United States, Argentina, Mexico, Australia, Egypt, Spain,
Turkey, United Kingdom, Belgium, United Arab Emirates, China, among others. The
company has served more than 592 customers in the last 3 financial years
KLSL’s Product Basket –

Product Family Product Group No of Products

Ammonium, Calcium, Magnesium, Potassium, Sodium,
Phosphate Others 36
Aluminium, Ammonium, Calcium, Copper, Magnesium,
Sulphate Nickel, 28
Barium, Calcium, Copper, Magnesium, Nickel, Zinc,
Chloride Manganous, 15
Acetate Ammonium, Barium, Calcium, Copper, Lead, Magnesium, 12
Barium, Calcium, Copper, Lead, Magnesium, Nickel,
Nitrate and Nitrite Potassium, 11
Citrate Ammonium, Magnesium, Potassium, Sodium, Zinc, Others 10
Ammonium, Calcium, Magnesium, Potassium, Sodium,
Carbonate Others 9
EDTA Derivatives Potassium, Sodium, Others 6
Hydroxide Barium, Calcium, Magnesium, Potassium, Sodium, Others 4
Succinate & Gluconate Sodium, Zinc, Others 3
Others Aluminum, Ammonium, Calcium, Copper, Lead, Magnesium 54
Total 185
Source - Co

Key Products & there Applications –

Citrate Industry
The versatility of citrate and its products makes it a key compound used in a variety of
industrial applications. Natural citric acid exists in plants such as lemons, citrus,
pineapples, and other fruits, and in animals' bones, muscles, and blood. Citrates
include sodium citrate, potassium citrate, calcium citrate, zinc citrate, etc
Citrate's primary role in the food and beverage industry is as a flavouring agent to
improve mouthfeel alongside as a pH control agent. For example, it is used for gel
control, buffering, and enhancing preservatives and as a chelating agent to enhance
the effect of antioxidants and prevent seafood from getting spoiled. It also improves
flavour and ensures the accuracy of the acidity in drinks

Citrate works by reducing the amount of acid in the body. Therefore, they prevent and
treat high acid levels in the body. It may also be used to help prevent gout or kidney
stones (conditions caused by high uric acid levels). Whereas it regulates pH and acts
as an effective buffering system. Furthermore, it can be employed in effervescent
tablets and preparations to enhance the palatability of drugs.
Carbonate Industry –

A carbonate is a salt of carbonic acid (H2CO3). It is found in nature in various forms

including minerals, rocks, and living organisms. Carbonate rocks, such as limestone
and marble, are made up of carbonate minerals.

Further, carbonates are found in the shells of many marine animals, such as molluscs
and corals. They have a wide range of industrial and commercial uses. They are used
in the manufacture of cement, glass, paper, and rubber. Carbonates are also used as
food additives and in pharmaceuticals.
Acids can be neutralised by carbonates, which are weak bases. Many reagent
applications, including buffer solution production and pH-sensitive chemical
stabilisation, make use of this characteristic. Further, metal ions from aqueous
solutions can also be precipitated using carbonates since a majority of metal
carbonates are water insoluble. This characteristic is helpful in many synthetic and
analytical applications, including the separation of metal ions and water purification.

Phosphate Industry –
Phosphate rock, primarily sourced from countries like China, Morocco, the United
States, and Russia, serves as the main reservoir of phosphorus, an essential element
for the growth of plants and animals.
In the pharmaceutical industry, phosphates are employed as excipients and active
ingredients in drug formulations. They serve as disintegrants, binders, and fillers in
tablet and capsule production. Additionally, some phosphate compounds have
therapeutic uses, such as potassium phosphate for electrolyte replacement in
intravenous solutions

Phosphates are incorporated into nutraceutical products, which combine nutritional and
pharmaceutical characteristics. They are used as dietary supplements to provide
essential phosphorus and other minerals to promote bone health and overall well-
being. Phosphate salts are a common source of phosphorus in nutraceuticals,
supporting various bodily functions

Phosphates are used in the personal care and cosmetics industries as additives in
various products. They may be found in shampoos, conditioners, and other hair care
products, as well as in some skincare formulations
Acetate Industry –
Acetate is a salt or ester of acetic acid. It is a versatile compound with a wide range of
uses in many different industries. An acetate is a salt formed by the combination of
acetic acid with a base. Acetates are used as food additives to preserve food, adjust
acidity, and enhance flavour. Also, they are used in a variety of cosmetic products,
such as nail polish removers, hairsprays, and deodorants
Numerous dietary supplements include acetates. This is because of its health
advantages which include their capacity to strengthen the immune system, lower
inflammation, and enhance cardiovascular health.

Analytical chemistry often uses acetates as buffers as buffers are pH-resistant

solutions and they are ideal for use in processes where a steady pH is needed.
Acetates are also useful in chromatography as ion-pairing reagents. In
chromatographic systems, ion-pairing chemicals are employed to enhance the
separation of charged molecules

Sulphate Industry -

Sulphates are inorganic ions found in nature and synthesized for industry. In the
natural world, they occur as aerosols from biomass combustion and as part of the
sulphur cycle of some microorganisms

Sulphates are also the salts and esters of sulphuric acid, a highly corrosive acid. These
compounds are valuable in many industries because they are excellent detergents,
emulsifiers, and foaming agents

Sulphur is a highly effective and powerful nutrient for soil. Sulphate is one of the
sulphur fertilizers, highly effective and well-suited for fast-growing crops. There are
also some sulphates with special benefits like ferrous sulphate. It can be used as a
pesticide and is more suitable for flowers and trees

Sulphate is widely used in industrial applications in glass, papermaking, textiles, dyes,

non-ferrous metal smelting, leather, detergents, cement, enamel, and other industries.
It can also be used to produce other chemical products such as sodium sulfide and
sodium silicate

Gluconate Industry –

Gluconates are salts of gluconic acid, a naturally occurring organic acid. They are
produced by fermenting glucose, a sugar derived from corn or other starch-based
crops. They are used in a variety of products, including food & beverages,
pharmaceuticals, personal care products, and industrial applications
Gluconate is often employed to address mineral deficiencies. Gluconates are also
utilized in nutraceuticals to provide essential minerals like calcium, magnesium, and
zinc in a form that the body can easily absorb. They enhance the nutritional value of
dietary supplements, functional foods, and beverages, contributing to overall health
and well-being. Their solubility and minimal taste impact make them popular in
nutraceutical products.

Gluconate is a frequently utilized food additive and dietary supplement in the food and
beverage sector. It serves to modify flavours and enhance the nutritional content of
various food and beverage products

Kronox gives strong importance to Research & Development and Quality Control. R&D
leads to new product development required for growth of business and profitability
while QC helps to achieve customer quality standards for the continued supply of
products required by the end user industries.

Further, Custom manufacturing of products requires substantial R&D before

production. For example, the company recently achieved quality specifications for
calcium chloride and magnesium chloride for drinking water, calcium acetate for
pharma applications, ammonium fluoride, tri-potassium phosphate, potassium
hydroxide, potassium acetate, potassium chloride for diversified applications

KLSL’s future business strategy going ahead –

Kronox will be expanding product portfolio, increasing the supply of products to existing
customers and tap new customers in existing and new geographies. The company’s
experience and expertise of 15+ years in the industry has helped it to capitalize on new
opportunities offered by the customers. The company has expanded its product
portfolio to more than 185 products spread across diverse applications. Further, the
company is working towards new products forming a part of the family of acetate,
adipate, ascorbate, aspartate, benzoate, citrate, EDTA, gluconate, glycinate, lactate,
malate, orotate, propionate, sorbate and succinate, among others.
Some Key Products which are in various phases of R & D by KLSL –
Product Group Number of Products Applications
Acetate 12 Pharmaceuticals, Nutraceuticals, Food
Adipate 2 Pharmaceuticals, Nutraceuticals, Food
Ascorbate Derivatives 6 Pharmaceuticals, Nutraceuticals
Aspartate Derivatives 8 Pharmaceuticals, Nutraceuticals
Citrate Derivatives 22 Pharmaceuticals, Nutraceuticals, Food
EDTA Derivatives 13 Pharmaceuticals, Nutraceuticals, Food
Gluconate Derivatives 18 Pharmaceuticals, Nutraceuticals
Glycinate Derivatives 18 Pharmaceuticals, Nutraceuticals
Source – co
KLSL also plans to expand the capacity for existing products and diversifying
into new products by setting up a new manufacturing facility –

As on date the company’s aggregate installed capacity is 7,242 TPA across three
Manufacturing Facilities. To meet requirements of new customers, the company
intends to establish a new manufacturing unit at GIDC Dahej – II Industrial Estate and
the company have acquired land admeasuring to 20,471 sq. meters for the said facility

Company has got all the approvals for starting the new unit at Dahej which will cost
around Rs 60-70 crs and where the phase 1 will start by December 25 onwards with a
initial capacity of 1500 tpa. The company expects that this unit will contribute
significantly in FY27 where in it expects a revenue of Rs 300 crs which will largely
cater to the Nutraceuticals segment

The entire funding for this unit will be financed by internal accruals and no fresh debt,
Around Rs 30 crs will be spent in FY25 and the balance Rs 35 crs in FY26. However
looking at the present operating cash flows we believe that some portion of this
expansion may have to be funded by debt but looking at the high operating margins
enjoyed by the company we believe that this incremental debt can easily be serviced
by the company going ahead
KLSL also plans to explore newer applications for the existing products and
developing new products that are in synergy with the current and future
operations –
KLSL believes that the growth in end-use industries such as APIs, pharmaceutical
formulations, agrochemical formulations, nutraceuticals, personal care, scientific
research and laboratory, metal refining, animal health, biotech, beverages, food,
electronics and precision industrial products, among others, will lead to an increase in
demand for its current and proposed products. Moreover, the expansion of its portfolio
through existing and proposed manufacturing facility is expected to further strengthen
the company’s market position and will enable it to offer comprehensive solutions to its
customers.
Some of the new products proposed to be launched by the company –
New Products Industry Est Global Market Size CY2022 US $ Mn
Glycinate Pharmaceuticals, Nutraceuticals, 344
Scientific Research and Laboratory Testing,
Food and Beverages and Animal Feed
Succinate Pharmaceuticals, Nutraceuticals, 144
Scientific Research and Laboratory
Testing and Food
Gluconate Pharmaceuticals, Nutraceuticals 698
Food and Beverages and Construction
Source – Co
The global nutraceuticals market is expected to grow from $418 billion in 2023 to over
$703 billion by 2033. The market is growing due to a number of factors, including:

• Health awareness

Consumers are becoming more aware of health and wellness, and are seeking
preventive healthcare options.

• Chronic disease prevalence

The prevalence of chronic diseases is increasing, and the associated costs are
projected to reach $47 trillion by 2030.

• Aging population

The geriatric population is increasing, and there is a growing use of dietary

supplements among adolescents.

• Natural and organic ingredients

Consumers are increasingly preferring natural and organic ingredients.

The nutraceuticals market is segmented in a number of ways, including:

• Product type: Dietary supplements, functional foods, and functional beverages

• Distribution channel: Supermarkets/hypermarkets, convenience stores, online
retail, and others
• Indication: Digestive and immune health, energy & alertness health, heart health,
bone & joint, cognitive health, and beauty health

The United States is a leader in the global nutraceuticals market, and is expected to
maintain its dominance

The global nutraceutical market was valued at USD 451.7 billion in 2023 and is
expected to grow at a CAGR of 4.7% from 2024 to 2032. This growth is driven by
increasing consumer awareness of health and wellness, with more people seeking
preventive healthcare options

The India nutraceutical market size was estimated at USD 26.87 billion in 2023 and is
expected to reach USD 30.36 billion in 2024. The nutraceutical industry encompasses
three main segments which include functional foods, dietary supplements, and
herbal/natural products.
The dietary supplements market in India is valued at USD 3924.44 million in 2020 and
reports say that it will reach USD 10,198.57 million by 2026 that is 22% growth rate
year on year.

The ongoing pandemic and the rising importance about preventive healthcare has led
to the exponential growth of this sector.

Indian population has begun to believe in immunity-boosting supplements and has led
to a significant shift in buying patterns and market behaviour. Vitamin capsules,
chewable tablets and gummies are examples of the open-minded buying behaviour of
consumers of healthcare products.

The consumption of potential nutrients and micro-nutrients like Vitamin A, Vitamin

D, Vitamin C, folate, selenium, zinc, etc. has substantially increased for better immunity

The urban population across India have become health and fitness conscious like
never before. This is providing a massive growth opportunity for Nutraceuticals
Industry in India. Due to which the market is expected to witness significant growth.

Nutraceutical manufacturers and marketers have come up with new ways to make the
consumer aware about the product, its benefits and role in preventative healthcare as
well as medical treatment.

We hence believe that Kronox with its strong R & D and rich expertise in this segment
will benefit significantly going ahead over the next 2-3 years ahead.
KLSL’s Key Competitive Strengths

Professional Competency - The most important factor for any niche chemical inputs company is
execution, and execution has been top-notch for Kronox. Specializing in providing customised
solutions serving customers in high-growth segments with substantial untapped market
potential, while maintaining a strategic focus on building quality service and consistent
standards
Scalable Business Model – KLSL enjoys a business model which is scalable. The biggest positive
KLSL enjoys is that it is a fully Indian-grown speciality Chemicals player which specializes in
providing customized solutions across the value chain covering segments like animal feed,
pharmaceuticals and nutraceuticals

High entry and exit barriers due to long customer approval cycles and strict product
standards – The company’s manufacturing process involves multi-step production and purification
processes to manufacture fine chemicals. Further, given the nature of the application, its processes
and products are subject to, and measured against established domestic and international standards
and stringent specifications of customers. The manufacturing facilities are subject to on-site
inspection by potential customers or its agencies/consultant, for adherence to good manufacturing
practices (GMP), cleanliness, equipment maintenance, safety measures, and environmental
regulations. Thus, customer acquisition involves a long process and gestation period is higher

Dynamic Promoter - The company’s promoters and directors have collective experience of over
seven decades in the chemical industry. The company’s Promoter and Director, Jogindersingh
Jaswal, was with the erstwhile Ranbaxy Laboratories Limited and Ranbaxy Fine Chemicals Limited
from the year 1994 till 2001 and has over three decades of experience. Additionally KLSL has a
excellent operations team, with many well qualified personnel on its board also.

Operating efficiency, key lever for profitability improvement going forward –

To meet requirements of new customers, the company intends to establish a new
manufacturing unit at GIDC Dahej – II Industrial Estate and the company have
acquired land admeasuring to 20,471 sq. meters for the said facility

Company has got all the approvals for starting the new unit at Dahej which will cost
around Rs 60-70 crs and where the phase 1 will start by December 25 onwards with a
initial capacity of 1500 tpa. The company expects that this unit will contribute
significantly in FY27 where in it expects a revenue of Rs 300 crs which will largely
cater to the Nutraceuticals segment. We expect significant benefit of operating
leverage to kick in going ahead

Zero debt company with strong and consistent financial performance – The
company’s enjoys robust balance sheet, positive operating cash flows coupled with
zero debt position has enabled to fund its strategic initiatives, pursue opportunities for
growth and better manage unanticipated cash flow variations.
Strategically located manufacturing facilities providing supply chain efficiencies-

The company has 3 strategically located Manufacturing Facilities which are located in
Padra, Vadodara, Gujarat, in close proximity to several ports including Kandla,
Mundra, Hazira and Nhava Sheva which ensures that the company has ready access
to port facilities and is able expediently import its raw materials and export its products
thereby providing the company with a cost and logistical advantage.

Key Weakness –

Any loss of key customers can be a short term negative as company is largely
catering to customized requirements of each of such customers
In case there are any quality issues this could also impact business negayively

KLSL enjoys a strong balance sheet with huge scalability potential going ahead
–

KLSL runs a strong business model covering multiple product segments and a large
product base and at the same customizing customer requirement in small to medium
batches for both domestic and export customers

We expect that going ahead overall bottomline growth in the next 3 years starting FY25
onwards should increase at a CAGR of 28%

We expect the PAT to double in the next 3 years until FY27 to Rs 56 crs from Rs 21
crs in FY24.

Also EBIDTA is also expected to grow at a CAGR of 28% in the next 3 years to Rs 79
crs in FY27 from Rs 28 crs recorded in FY24

Going ahead the company is confident of improving its absolute absolute operating
profits on higher business volumes & higher contribution from its new facility at DAhej
plus additionally from product yield improvements in the coming years which will also
improve in stronger OCFs in coming 2 years ahead
Business Outlook & Stock Valuation –
On a rough cut basis, in FY25E & FY26E & FY27E Total Revenue is expected to touch Rs 109.80
crs, followed by Rs 137 crs in FY26E & Rs 240 crs in FY27E. On the bottomline level we expect the
company to record a PAT of Rs 27 crs in FY25E & which is expected to bounce back to Rs 36 crs in
FY26 & Rs 56 crs in FY27
The company management is confident of improving its profit margins in going ahead via operational
efficiency, higher business from new branches and better pricing due to operating leverage benefits
coming from higher revenues coming in from the new Dahej facility
What is commendable for the company is that it has funded this business largely from its own cash
accruals with very little dependence on debt. Even going ahead the management is confident that all
expansions will be funded by internal accruals and no fresh debt.
However looking at the present cash flows we have conservatively put in a small debt element but
despite this ROCE and ROE in FY25 stands at 32% and 34% which will 31% and 36% in FY27 when
the dahej unit is fully operational. We believe these numbers look very attractive as the company
operates in a high margin product business where it customises requirements for select marquee
customers. Finally if the company manages to not have any debt as it is targeting then financial
numbers both the ROCE and ROE as well OCF will be even more robust

Looking at KLSL’s steady financial track record, strong business domain and dominant market share
and strong promoters we expect the stock to get re rated in future. Hence we believe that the KLSL
stock should be purchased at the current price for a price target of around Rs 240 over the next 12 to
15 months
FINANCIALS
For the Period Ended FY21 FY22 FY23 FY24 FY25 FY26 FY27
Sales 62.00 82.00 96.00 90.00 109.80 137.26 239.71
EBIDTA 15.00 20.00 22.00 28.00 38.43 48.04 79.10
EBIDTA % 24.19 24.39 22.92 31.11 35.00 35.00 33.00
Interest 0.00 0.00 0.00 0.00 0.70 1.75 1.80
Depreciation 2.00 2.00 2.00 1.00 1.40 1.65 2.00
Non OP Other Income 1.00 1.00 1.00 2.00 2.00 2.00 2.00
PBT 13.00 18.00 21.00 28.00 38.33 46.64 77.30
Core PAT 10.00 14.00 18.00 21.00 27.00 36.00 56.00
Diluted EPS (Rs) FY Rs 5) 416.67 583.33 4.86 5.68 7.30 9.73 15.14
Equity Cap 0.24 0.24 37.00 37.00 37.00 37.00 37.00
Reserves 27.00 40.00 8.00 29.00 56.00 92.00 148.00
Borrowings 4.00 3.00 0.00 0.00 7.00 15.00 15.00
Gross Block 9.00 11.00 16.00 26.00 51.00 76.00 91.00
Investments 2.05 2.91 3.56 3.64 3.65 3.65 3.65
Source Company our Estimates

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