Whalesbook
Global Sulphur Supply Crunch
Global supply of sulphur and its key derivative, sulphuric acid, is facing severe pressure. China's decision to stop exporting sulphuric acid from May 1, 2026, will further limit global availability. This comes after Middle East conflicts disrupted shipping routes through the Strait of Hormuz, a critical path for about 24% of the world's sulphur. These factors are expected to keep basic chemical prices high, affecting industries like fertilizers and mining. India, which imports about 85% of its sulphur from the Middle East, urgently needs to find new supply sources.
DMCC's Valuation and Profit Drop
DMCC Speciality Chemicals, valued at roughly ₹558 crore with a share price around ₹224, trades at a P/E ratio of about 20.4. This valuation is moderate compared to rivals. Aarti Industries trades at a P/E of 40-52, suggesting higher growth expectations from the market. Gujarat State Fertilizers & Chemicals (GSFC) is priced at a P/E of 9-10 and has no debt, offering a strong value. Bodal Chemicals trades between 27-42 times earnings.
Despite the higher pricing environment for chemicals due to supply shortages, DMCC's operations show challenges. In Q3 FY26, revenue grew 27.81% year-on-year to ₹150.87 crore, but net profit fell 21.60% to ₹6.17 crore. This shows ongoing margin compression. Gross margins have dropped from 55% in FY21 to below 40% partly due to lower sales from higher-margin specialty chemicals. The company's specialty chemical plants are operating at about 60% capacity as it seeks new customers.
DMCC's Challenges: Bulk Chemicals and Scaling Issues
DMCC's business relies heavily on bulk chemicals, making up about 56% of sales. This exposes the company to more fluctuating volumes and thinner margins than pure specialty chemical makers. While DMCC's debt-to-equity ratio has improved to 0.17-0.32 from 0.51 in FY23, it's not as strong as GSFC's debt-free position. The underuse of specialty chemical plants indicates ongoing difficulty in growing profitable segments, which is vital for improving margins long-term. The company has also faced issues with European demand in the past, showing vulnerability to economic slowdowns in key markets. The recent drop in net profit, despite higher revenue, highlights concerns about cost control and pricing power in its bulk chemical business.
DMCC's Path Forward: Margin Recovery is Key
DMCC Speciality Chemicals is set to benefit from higher prices in the sulphuric acid market. Its boron chemistry products are also showing traction, and new specialty chemical markets may soon approve its products. The company's engineering consultancy offers an additional revenue stream and insights into sector plant construction. However, significantly improving margins depends on increasing the share and use of its specialty chemical operations. Analysts forecast DMCC's FY28 earnings could lead to a P/E of under 10x, implying strong growth expectations that might not fully consider current margin pressures. DMCC's success will depend on managing bulk chemical margins while successfully expanding its specialty segment.