Fortune Scrip     

Published: March 15, 2023
Updated: March 15, 2023

De Nora India

Post-hiccups, back to growth path

This fortnight, we have selected a unique small cap multinational company (equity capital Rs 5 crore, market capitalisation Rs 860 crore). This little-known company is De Nora India, a subsidiary of the De Nora group of The Netherlands. In fact, the parent company was founded by Italian engineer Oronzio De Nora in 1923. Subsequently, the company promoted subsidiaries and joint ventures throughout the world. Today, there are 25 operating companies in 10 countries. Five R&D centres in Italy, the US and Japan ensure continuous improvement and enlargements of its proprietary technology covered by about 260 patent families with over 2,700 territorial extensions. The company’s subsidiaries are in Italy, Germany, The Netherlands, Europe, the US, Canada, Japan, Singapore and China, and De Nora serves customers in more than 100 countries.

In 1988, De Nora decided to enter India and joined hands with an Indian promoter group headed by the then Managing Director of Alfa Lavel. The next year, in late 1989, it formed a company styled Titanor Components Ltd, which acquired the metal anode division of Wimco located in Parwana village, Rampur (UP). As the volume of business started growing, the company set up a state-of-the-art plant in Kundaim, Goa and started meeting the demands of the rapidly developing chlor-alkali industry. Subsequently, the name of the company was changed to De Nora India. Its strength lies in its technical expertise backed by well-trained specialists who are supported by the parent’s highly qualified engineering staff.

SOME MIS-STEPS

The company began on a highly promising note but in the first decade of the new millennium started faltering as promoter Devika Khanna’s ‘arbitrary’ actions dismayed the parent company, which refused to supply technology and other support. As a result, the company’s performance started deteriorating. The sales turnover dropped to Rs 30-40 crore, and operating profit, which dropped to Rs 7 crore in fiscal 2011, nosedived further to zero in 2019.

The company’s future seemed bleak, but fortunately for it the Indian promoter was declassified as promoter. There was no go but to sell the shares of De Nora India at a price of Rs 250 in the market, and thus the parent company with a 54 per cent equity stake took full control of the management. Technological and other support were restored and the company returned to the growth path. During the last five years, its sales turnover has more than doubled from Rs 33 crore in fiscal 2019 to Rs 74 crore in fiscal 2023, with operating profit shooting up from zero to Rs 25 crore and the profit at net level surging from Rs 2 crore to Rs 15 crore.

TECH FLOW

The Indian subsidiary was not only ensured a regular flow of technology but was also now able to seamlessly import knocked down kits, components and spares on credit from De Nora subsidiaries worldwide. As the company started doing well, its share price started jumping up to reach an alltime high of Rs 2,334 before settling at around Rs 1,630. We have picked De Nora for our Fortune Scrip status this fortnight as the worst is over for the company after Devika Khanna of the Indian promoter group left the company. Now, the company is on a steady growth path. What is more, with green hydrogen getting a lot of importance in the country's energy policy, prospects for De Nora have brightened all the more. Consider:

• The company operates in three divisions: (a) electrode technologies, (b) water technologies, and (c) anti-corrosion systems. As far as the electrode technologies division is concerned, De Nora has electrodes repair and electrode manufacturing in the same plant for synergy. But in India a major requirement is for recoating, while manufacturing electrodes is limited to the chlor-alkali industry. Manufacturing these in the USA plant is very expensive. Hence, the Indian company is exporting its electrodes for the chlor-alkali industry to the US and elsewhere. This business is expected to grow further, going ahead. At the same time, De Nora outside India manufactures electrodes for all applications, including those used in fuel cells for industrial and electrical vehicles, in a joint venture with AFC Energy Plc. India will also take up manufacturing of these electrodes for all applications. But at present the Indian company has only one plant in Goa, which is not enough. However, the company has a sizeable land bank in Goa for future expansion. De Nora India will set up another plant to take up this manufacturing, which has very bright export prospects.

WATER TECH

• In the second business (water technologies), De Nora India manufactures standard as well as client specifications. The company manufactures all types of electro chlorinators for water purification for drinking water in railways, townships, residential flats, hotels, industries, swimming pools, water theme parks, etc. The company has tremendous growth potential in this segment.
• Just after the parent company took control of De Nora India from the Indian promoters, the company bagged a tender for industrial electro chlorinators from BHEL, Tamil Nadu for Rs 12 crore. Electro chlorinators are a must in coal, power, steel, nuclear, oil & gas and other industries that use sea water. The company has very good business prospects in this division.
• Till now, these chlorinators -- their kits, components, spares etc. -- are being imported from China and Singapore. Thanks to the government's policy of 'Make in India', De Nora India will emerge as a major beneficiary in this division.
• Anti-corrosion systems are used in steel, construction, marine, ships, industrial projects, etc., for prolonging life and durability. There is immense growth potential for this division as anti-corrosion coating is used in oil & gas pipelines for prolonging their life, as also for railway tracks, structures, bridges, etc. With the parent company taking full control, the company is bound to grow very fast in all these three activities.

GIANT'S ENTRY

• In 2021, Snam SPA - one of the world's largest energy infrastructure operators and one of Italy's largest listed companies -- acquired the entire stake in De Nora from Blackstone, thus becoming an industrial partner to De Nora and leveraging its portfolio of solutions for the production of green hydrogen. As per the new energy policy of India, green hydrogen is going to play a substantial role in achieving the Indian government's goals of energy independence by 2047 and net-zero by 2070. Green hydrogen is produced by the process of electrolysis where water is split into hydrogen and oxygen, using electricity generated from renewable sources like solar, wind and hydro power. This process results in a clean and emission-free fuel that has a huge potential to replace fossil fuel. Viewed from serveral angles, the importance of hydrogen in achieving energy independence for India cannot be overstated. Little wonder then that India has launched the National Green Hydrogen Mission with an outlay of Rs 19,744 crore. De Nora can play a very significant role in the green hydrogen push, which will also give a big push to the topline and bottomline of the company.
• The company's shareholding pattern is very healthy, as around three-fourths of all its shares are held in strong hands - 54 per cent in the hands of the Italian promoters and over 20 per cent in HNI and NRI investor groups. In the last quarter of the last year (March 2023), ace investor Mukul Agarwal bought 72,785 shares (a 1.37 per cent stake) as he has realized the great growth potential of the company. Realising that the fortunes of the company have undergone a dramatic change with the ouster of the Indian promoter, investors have rushed to buy these shares. At a result, the share price has zoomed to Rs 2,334 before settling at around Rs 1,750. Discerning investors should include this multibagger stock in their portfolio.