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Sunday, June 24, 2018

Ester Industries: Value Added Products

Ester Industries

CMP: 48.8
MCap: 406.96cr
Sales: 824.5cr
Net Profit: 5.29cr

Customer satisfaction through Innovation, Development and Partnership
Backed by 30 years of industry expertise, Ester manufactures Polyester Films, Specialty Polymers and Engineering Plastic compounds. Polyester Films find applications primarily in flexible packaging while Specialty Polymers find applications into niche areas including rigid packaging, textiles etc. The Engineering Plastics business processes various materials for industries like Automotive, Electrical & Electronics, Appliances and Telecom. We take pride in offering complete solutions to our customers even for their most demanding needs. We also partner with our customers to derive a sustainable competitive advantage through customized development projects.

Ester Industries Stock has corrected from a high of 78 to 48.8 a 37% drop from its 52 week high..
and quoting close to its 5 yrs (999 days) EMA (exponential moving average) of 42.36.

As you can see the stock bounced back from its 999day EMA levels before..

The company has a pretty good cash flow from operations .. 5 yrs Avg Cash Flow from Operations is: 53.74cr (5 yrs Average!! Wow) while 5 yrs avg Net Profit is 0.33cr.. (profits seem suppressed)

If we look at the Income (Profit Loss ) statement the company has been reporting low profits consistently..

Will the low profit margin change in the future??.. I think so.

1. Company in the past few yrs has been trying to increase its Value added business where margins are better.
2. Company signed an agreement with Dupont in past few yrs to do joint development of products using Dupont ingredients.
3. Based on this agreement and Esters R&D ...Ester has developed number of new products & has filed Product & Process Patents (which have been accepted in US)
4. Shaw Industries Group Inc USA which is a Berkshire Hathaway (Warren Buffett) company and largest carpet manufacturer in the world. Shaw Industries has approved "Stain Resistant Master Batch MB-03" This will impart permanent Stain Resistance to nylon carpets  this is agreement for 90cr worth of sales (2500 tonnes) every year..

This Agreement is for sales of about 90cr.. which is like 10% of its annual sales of 800-900cr..
But I believe every carpet manufacturer would like to sell "Permanent stain resistant carpets" so I'm sure other companies(competitors) will also follow suite and purchase from Ester Industries. Stain Resistant carpets could be the norm .. rather than an exclusion... as carpets are long term purchase item and every manufacturer would prefer stain resistant carpets..

If you look at the March quarterly & year end data.. Q4 Quarterly Profits are 5.42cr and Full year end Net Profit is: 5.58cr... Considering 5 yrs avg Operating cash flow of 50cr.. I would say reporting 25cr net Profit should not be that difficult.. with the new patents and related products sales .. I expect significant Margin improvement .. we can expect over the next few yrs that Ester can report 45-55cr net profit.. which is a 10x increase in Net profit..

there are already 4 products which are patent protected which have been accepted by customers..
with agreement with Dupont.. you can directly get acceptability and open number of doors to new clients..

There are some things of concern such as almost 15% shares in public domain are held by one company  Vettle International limited.. and these shares were issued @ rs 10 per share.. Vettle International initially had some 20% stake and has been selling some stock which could put downward pressure on stock price

Ii would say issuing 20% stake to an unknown company is not possible by promoters.. so Vettle is part of public holding .. but definitely known to the promoters indirectly.

Conclusion: Ester produces value added products using commodity petroleum products.. with agreement with Dupont and getting patent protected products in the market is a big leg up and should improve margins. Company has good cash flows and can easily report 10x increase in profit in the near future.. Stock is attractively priced and available close to its 5 yra EMA (42.36)

Sunday, April 15, 2018

Birla Precision Technologies: Comeback kid!!

Birla Precision Technologies
CMP: 8.17
Market Cap: 43.02Cr
Sales: 155.37Cr (March 2017)

Birla Precision Technologies Ltd (BPT) the erstwhile Birla Kennametal Ltd was established in 1986, as a joint venture company between YBG (Yash Birla Group) and Kennametal Inc, USA In July 2007. YBG acquired the stake of Kennametal in the JV consequent upon which Birla Kennametal was renamed as “Birla Precision Technologies” (BPT). BPT continues to be a primary vendor of Kennametal worldwide –USA, Germany and APAC supplying rotating tool holders in AT3 class. Besides, BPT also exports in a large way to other major customers in the USA, Europe and in recent times to the Far East including China

Leveraging its core competency of machining, forward integration into machining of precision components and castings was a natural progression and catering to global giants like Cummins, Knorr-Bremse, Husco International .

Yash Birla Group sold its Dagger Frost cutting tool division to Samvardhana Motherson Group (SMG) in 2009 .. though the remains of the cutting tool business with Yash Birla Group is a division of Birla Precision called "Indian Tools Manufacturers" https://www.indiantool.com/

The other division is: Birla Kennametal division which makes rotating tool holders AT3 Class.. Here Kennametal shareholding has been bought by Yash birla Group and name of the company was changed from Birla Kennametal to Birla Precision Tools. http://www.birlaprecision.in/index.html

The third division is "machine casting division" which makes Automotive components and exports it to automotive customers like Cummins and Honeywell.. this division was done in collaboration with "Perucchini of italy"

Birla Precision had debt restructuring and as part of it all companies related to automotive tools have been merged into Birla Precision as separate divisions mentioned above.. (consolidation of business) 

Now the promoters have recently (April 13,2018) passed a resolution for preferential allotment of shares to promoter company in Birla Precision. 

The company shares are also at rock bottom prices and turned bullish (golden Cross)

Conclusion: Book value is 18, cmp is: 8.17 and has recently shown some movement..
Considering the consolidation of all automotive and tools related business with Birla Precision and the subsequent preferential allotment to promoters.. Birla Precision looks like a long term bet on the Yash Birla group turning the company profitable.. Birla Precision has all the right ingredients just needs to think big.. and work towards it.. Invest is my view..

PN: this is not an investment advice.. it is my though process and a timeline for my point of view.. Pls consult a SEBI registered advisor.. and do your own deep dive..
=happy investing

Thursday, April 12, 2018

Manugraph: Bullish undertone..

CMP: 47.5 Mcap:144.47cr..

Was just looking at Manugraph.. 
Feb 7,2018 outcome of Board meeting states:

Board approves proposal to merge 100% subsidiaries and group companies with Manugraph..

WOW!!! Thats BIG Really BIG News!!

now if I look at companies with similar addresses as manugraph

it states there are 2095 companies with similar addresses.. I checked a few... not all 2095 companies have same promoters as manugraph..(the one marked is not a promoter company)  but to say the list above is the complete list of companies owned by promoters would also be wrong..

So all said and done.. the statement that promoters are going to merge group companies into manugraph.. means we are going to see value unlocking.. 

predicting when that will happen .. would be speculating.. 

No of shareholders:
Dec 2017: 11,221 
Dec 2016: 11,942
Dec 2015: 12,248
Dec 2014: 11,873
Dec 2013: 12,404

lowest no of shareholders in past 5 yrs!!

Lets close by saying this is an interesting development to be kept in mind.. with bullish undertones..

=happy investing

Tuesday, April 10, 2018

Eastern Silk: Discounted stock.. Exporter of Silk

Eastern Silk Industries
MCap: 27.08cr
March 2017: Sales:63.42cr, Net Profit: 45.06Cr

ESIL a Kolkata based company incorporated in April 9, 1946 before Independence and it got its current name in 1975. The chairman is Mr. Shyam Sunder Shah. The company is engaged in various multifaceted activities like manufacture of silk yarn, fabrics and made ups, home furnishings, fashion fabrics, double width fabric, scarves, laces, melts and embroidered fabrics.

The company has been recognized as a Golden Star Export House by the Government of India. Sales are mainly from export markets. US and Europe account for about two – third of the company’s exports. Other export destinations comprise Australia, Middle East, Canada, Japan, New Zealand and Scandinavian & EFFTA countries. Its equity shares are traded on the Bombay Stock Exchange and National Stock Exchange.

ESIL is one of the largest high – end fabric manufactures in the World. Facilities at ESIL’s factory and design center are constantly upgraded as new technology is developed, to keep it on the cutting edge of industry. A wealth of technical and designing expertise accumulated over the years is put to work in developing new designs/blends.

The engineers, technicians and Supervisors in the production units are experienced and well qualified. The production is done round the clock. The whole production units are humidity and temperature controlled. The highly automated production facilities and through control systems are both highly efficient and environmentally friendly.

Manufacturing Facility
ESIL is a composite unit having the entire operations from softening, widening, doubling, twisting, dyeing, weaving and embroidery to finishing under one roof. Sophisticated processes from design to weaving are performed by the latest computerized systems,. The result is a co oriented and continuous operation that provides maximum efficiency and productivity. These steps have boosted ESIL’s reputation as a producer that can respond to customer demands for unique and sophisticated products.

Design Studio
ESIL has made an impact on global decorative fabrics industry with its world class designs and technology as well as diverse product lines, ranging from pure silk to blends from decorative furnishings to bridal wears. ESIL is constantly expanding its line up of value – added products and extending global distribution network to improve the quality of services it provides to their worldwide customers.

unit 1: 
411, Telugarahalli Road, Anekal
Bangalore – 562 106

unit 2:
No.39, Kammasandra Agrahara,
Kasaba Hobli, Anekal,
Bangalore – 562 106

unit 3:
Plot No. 209, Phase 3
Bommasandra Village,
Attibele Hobli
Bangalore - 560099

unit 4:
Falta Special Economic Zone,
24 Paraganas (South)
West Bengal

The company was referred to BIFR (Board for Industrial & Financial Reconstruction) but in Dec 2016 the company was removed from under BIFR. The company has been paying back its dues to banks/financial instutions and ARC (Asset Reconstruction Companies) on a one time settlement basis.. all these One time settlement done with ARC & Lenders by the company has resulted in 119.96Cr Waivers (last year: 58.24Cr)

Another point worth mentioning is that the company has Preferential capital of 14Cr while Equity capital is: 15.79Cr.. Preferential capital is supposed to receive preferential dividend which the company has not distributed so most likely the equity shares will not receive any dividend in the near future (preferential capital has first right over dividend distribution..)

Looking at the stock price the stock has been in dumps and it seems to be just turning around.. at current prices there is not much to loose..

if you look at the cash flows from operation
March 2017 Cash Flows from Operations before Exceptional Items: 29.19Cr
March 2016 Cash Flows from Operations before Exceptional Items: 30.38Cr
March 2015 Cash Flows from Operations before Exceptional Items: 7.92Cr
March 2014 Cash Flows from Operations before Exceptional Items: 47.74Cr
March 2013 Cash Flows from Operations before Exceptional Items: 6.41Cr
 5 yrs avg cash flow from operations: 24.32Cr

Forgot to add export data.. (latest that I have .. pls dont ask how i got it.. :-))

Conclusion: Eastern Silk is a well established company.. with regular exports from Bangalore and Calcutta.. Preferential equity means most likely no dividend payout by the company to equity shareholders .. The company as such seems to be well established and has positive cash flows.. With the change in govt attitude and banks lending to only solvent companies we can expect companies to start reporting profits... in year 2011 Eastern silk had sales of 600cr @ Mcap of just 27Cr when 5 yrs avg cash flow from operations is:24.32Cr I think its highly undervalued and we can expect market to give it a better capitalization in the future as the company fortunes turn for the better... Stock price seems to be just rising above its lows breaking above the 5 yrs EMA: 3.88.

PN: this is a blog of my thought process.. pls do your own deep dive before investing.

Tuesday, March 13, 2018

IOL Chemicals & Pharmaceuticals Limited. (IOLCP)

MCap: 430.53Cr

IOLCP is part of the Trident Group of companies located in North India. Company was established in 1986, IOLCP is India's one of the leading generic pharmaceutical company, and is significant player in the Organic chemicals space. IOLCP has wide presence across various therapeutic categories like, Pain Management, Anti-diabetic, Anti hypertensive, Anti Convulsants, etc. 

Our capabilities are nurtured by pursuing & implementing the high standards of excellence in our operations. By delivering consistent results & quality we have earned the admiration of customers and stakeholders. Innovative Strengths & Strong Growth have made us the market leaders. We have built up our expertise responding to diverse customer requirements Our products cater to the key industrial sectors of Pharmaceutical, Flexible Packaging, Paint & Lamination, Ink, Pesticides, etc. Efficient teamwork & strong associations have guided us to success. Accolades for our environmental policies have come from the highest levels of power. 

Through an unwavering focus on Quality, Commitment & Delivery, we have charted our way to success in our operations and have won the admiration of our customers. Our success is built on the strong pillars of innovation, quality, & dedicated customer service. By incorporating these & other business strengths, we have boosted our capabilities to maintain the leading edge in the industry & earn the loyalty of our customers.

IOLCP is focused towards Quality, technology upgradation and expansion has provided an unwavering path of success. Every milestone achieved has left behind a remarkable footprint in the growth chart of the organization.

  • 1986 Incorporation of IOL Chemical & Pharmaceuticals
  • 1991 Commencement of Acetic Acid production
  • 1996 Commencement of Ethyl Acetate Production
  • 1999 Commencement of Acetic Anhydride Production
  • 2000 Commissioned Ibuprofen Plant
  • 2006 Commissioned Co-Generation Plant
  • 2009 Commissioned Iso-Butyl-Benzene, Mono Chloro Acetic Acid & Acetyl Chloride Plant
  • 2012 Commissioned Multipurpose Plant
API: Under API division in Pain Management and its derivative and salts, in Life Style Drugs Metformin Hyderochloride, Lamotrigine, Fenofibrate Clopidogrel Bi sulphate Ursodeoxycholic acid and many more are developed for commercial distribution across the globe. Company is focusing on generic product development and cost effective commercialization. Presently, 6 API's are already commercialized and 10 API's are in the advance stage of development

Speciality Chemicals: The Speciality Chemicals division produces Ethyl Acetate from organic alcohol for use in a variety of end products in markets, including flexible packaging, pharmaceuticals, textiles, food processing, pesticides and paint industries

The major product is Ibuprofen (commonly known as Brufen) IOLCP manufacturers inhouse chemicals required for ibuprofen ie. IsoButyl Benzene (IBB), Mono Chloro Acetic Acid (MCA) & Acetyl Chloride. 

Sales have steadily increased over the years.. IOLCP is all set to cross 1000Cr in sales this year.. with sales increasing 3x in past 10 yrs.. from 300Cr (2008) to now 1000+Cr in 2018..
Net Profits are also the highest in past 10 yrs.. though the margins are in low single digits.. (1-2%) 

In general we should expect netprofit of 5-6% which on sales of 1000Cr should result in profits of around 50-60Cr

Cash flows from operations have also been fairly steady and increasing.

Stock seems to have bottomed out and ready to begin its upward journey.. 
Dec 2015: Promoter stake: 39.92% No of shareholders: 9,193
Dec 2016: Promoter stake: 39.92% No of shareholders: 12,009
Dec 2017: Promoter stake: 41.19% No of shareholders: 21,923

There has been no new issue of shares but the promoter stake has increased.. also Trident is listed as a non promoter entity .. when clearly it should be in associates.. or promoter group..

Lot of corporate shareholders.. looks like promoters had stake through other companies and they are re-organizing their stake.. Stock price should have reflected the increase in sales and profits but that seems to be missing.. 

Conclusion: IOLCP is part of the trident group of companies.. which is a well established business house. IOLCP is concentrating in Ibuprofen market and has backward integrated and is increasing capacity..Promoters seem to be re-arranging their shareholding and this could be the reason the stock is quoting at attractive levels.. good time to accumulate for long term investors..

PN: this is for my blog and is a timeline for my own though process.. Please do your own deep dive before investing and take assistance of SEBI recognized advisor.. 

Sunday, March 04, 2018

Williamson Magor: Hidden Hidden Hidden Gem..

Williamson Magor:
MCap: 113.78Cr
Consolidated Sales March 2017: 64.37Cr
Consolidated Net profit: -ve 13.99Cr

The Company came into existence as a Corporate Entity on 10th March, 1949 when it was incorporated under the name 'MACNEILL & BARRY LIMITED' to do business inter alia as General Merchants, Agency Business and Manufacture of all kind of articles.

The Company became a Multidivisional Company with interests among other things in Manufacture of Tea, Jute, Engineering and Reprographic Items. The Company also had Agency and Trading Divisions.

The year 1975 was a land mark year for the Company when the then Williamson Magor & Co. Limited who were primarily engaged in the business of Growing and Manufacturing of  Tea was amalgamated with the Company whereupon the name of the Company was changed to 'Macneill & Magor Limited'.

Williamson Magor & Co. Limited, had a long history in tea business dating back to the year 1868 and is considered to be one of the pioneers of tea business in India. As a result of the amalgamation, the Company became a major tea Company in the country while having various other business in its fold. Later, the Company changed its business strategy and decided to hive off all divisions other than tea to a few newly set up companies within the group.

In lieu of transfer of the said business the Company was allotted substantial number of shares by the Transferee Companies as consideration for the business so transferred. On completion of the process the Company again changed its name to Williamson Magor & Co. Limited in 1992 having principal business of growing and manufacture of tea and investments in group companies. Later the tea business was also hived off in favour of certain group companies as a result of which the Company became a pure Investment and Group Shareholding Company.

The Company accordingly made an application to the Reserve Bank of India for registering itself as a Non-Banking Financial Company (NBFC). The Company was granted the required licence to act as an NBFC by the Reserve Bank of India on 31st March, 2003 and since then the Company is in the said business with substantial investments in the group companies like McLeod Russel India Limited, Eveready Industries India Limited, Kilburn Engineering Limited, McNally Bharat Engineering Company Limited etc.,

The Company is listed on the Bombay Stock Exchange, The National Stock Exchange of India, The Calcutta Stock Exchange and the Gauhati Stock Exchange.

The Company owns a ten storey building at Four Mangoe Lane, Surendra Mohan Ghosh Sarani, Kolkata 700001 where the Registered Office of the Company is situated. The Company being the major Group Shareholding Company, the Group is popularly known as Williamson magor group.

History of WM group:

The history of the Williamson Magor Group dates back to 1866. In that year, Captain J H Williamson, who was already involved in the management of tea estates in Assam, met R B Magor, an assistant with the Great Eastern Hotel in Calcutta. Their subsequent meetings and association led to the signing of the First Partnership Deed of the company in 1869. This was valid for a period of two years.

The agreement was renewed in 1871 and by 1875, its term was increased to five year periods. The company had its first office premises at 7 China Bazar Street. J H Williamson died in 1898. George Williamson, who had already withdrawn his capital from the business in 1879, died in 1903. In 1904, the Partnership Deed was renewed with R B Magor and J H Williamson's brother - in - law, Robert Lyell, enjoying an equal share. Williamson Magor & Co. worked closely with its  London partnership, George Williamson & Co., the firm which a few years earlier had been started by James Williamson's brother, George.

The fortunes of the Williamson Magor Group grew along with the boom in the Indian tea industry. By the turn of the century, the company was handling the affairs of 44 tea estates. The Group also became involved in other businesses, including coal. Although the Indian tea industry continued to prosper during the First World War, there was an immediate post - war slump around 1920. The situation became worse with the Wall Street crash of 1929 and the ensuing depression. The production levels of tea far outstripped consumption. George Williamson, the London end of the partnership and Williamson Magor, the Indian end of the partnership, consolidated their position in the tea industry through the twenties and the thirties.

R B Magor died in 1933. His grandson, Richard Magor introduced B M Khaitan to the Group. Initially, Briju Khaitan supplied tea chests and fertilisers to the company and had become a friend of Pat Williamson, a grandson of J H Williamson. Williamson Magor & Co. was converted into a Limited Company in 1954. In 1961, a crisis loomed over the company when B Bajoria, an investor, acquired nearly 25% stake in the Bishnauth Tea Company, the flagship in the Williamson Magor Tea Estates. The Khaitan family provided the money to buy out Bajoria's stake. B M Khaitan was invited to join the board of the company and later, in the face of stiff resistance, went on to become Managing Director of the Group.

The Guthrie family was the majority shareholder in the McLeod Russel Group. In 1987, they decided to sell their tea plantations in India. B M Khaitan negotiated with them and bought out the estates. This meant the Williamson Group became the largest private tea producer in the world. George Williamson went on to acquire and manage tea estates in East Africa. This effort was pioneered by Richard Magor. In April 2001, George Williamson & Company, Kolkata and Williamson Magor & Company, Kolkata mutually decided to separate and work independently. As a result, George Williamson & Company, London ceased to be the overseas partners and selling agents for Williamson Magor & Company, who forged their own links and have now developed a competent overseas sales network.

 The offices of the Williamson Magor Group were shifted from 7 China Bazar Street to 4 Mangoe Lane in 1894. Originally known as Hampton Court, the premises was redeveloped through the mid 1960s.

Mangoe Lane tells its own story. It was lined with mango trees on both sides and presumably took its name from these, though why the 'e', which normally appears only in the plural from 'mangoes', should have been tagged on is not known.

The foundation stone of the splendid new building was laid on the 24th January, 1966 by Mrs. O. J. Roy.
Rising nine floors from street level, with an attractive penthouse on top of the ninth storey, the building, with its somewhat severe lines, is in keeping with modern trends of architecture.

One of the most important features of the eighth floor is the very well-equipped tea tasting room, which is situated on the north side or front of the building in order to provide optimum working conditions for the "spitting" staff.

The ten storey block - which stands to the present day - was officially opened in 1968. This asset proved to be a valuable investment as a number of floors were let out...

Williamson magor as such does not have much sales or profits to show.. it does however have number of listed companies where Williamson magor has large shareholding. As already mentioned It has shareholding in:

Eveready Industries (Indias largest battery maker and worlds one of the top 5 battery makers) Sales:1418Cr 
Shareholding: 23.40%

Mcleod Russell India Limited is worlds largest bulk tea producer in tea estates in India, Srilanka, Vietnam, Africa. 39,770 hectares of tea estate and 100 million Kg of tea sold every year.
Sales: 1485Cr

Mcnally Bharat Engineering Company  is an engineering company providing tunrkey solutions in power, Steel, coal mining, ports, Aluminium, material handling, mineral processing,Cement, Water, Oil & Gas and Infrastructure sectors such as Buildings & Townships, High Rises, Roads, Metro, Rail etc. Over 350 plants have been constructed on a turnkey basis by MBE till date. Sales :1924Cr Shareholding: 23.26%

Kilburn Engineering: Specialized for nearly four decades in Process Design, Manufacture, Supply, Installation and Commissioning of various critically customized process equipment for diverse applications
Sales: 136cr
Shareholding: 32.58%

Majerhat Estate & developers limited:
Sales: not listed
Shareholding: 49%

D1 Williamson magor Biofuels
Shareholding: 15.70%
Sales : not listed

Company has invested in preference shares issued by Mcnally Bharat Engineering worth 500Cr and Williamson magor has taken loan for the same.. this has increased its debt burden.

Financially the company looks like its in doldrums with losses .. but its all because of the re-capitalization of Mcnally bharat engineering.

What really caught my eye if this:
No of shareholders decreasing every year..
Dec 2015: 8449
Dec 2016: 8191
Dec 2017: 6926

As can be seen there has been a major decrease in the no of shareholders which means accumulation has happened by strong hands...

If you see the annual report March 2017.. the company has conveniently left out its significant asset heavy companies from its consolidated results because: (Unavailability of IGAAP compliant financial statement)

if you include these associates in consolidated results..

Books Value should be up by: 6774.96(lakhs Eveready industries) + 2381.12 (lakhs Mcnally bharat)
Increase in book value: 91.56Cr

Profits not consolidated: 9191.65 (lakhs Eveready industries) + (-ve) 5875.19 (Lakhs Mcnally Bharat) Increase in Profits: 33.16Cr

Current Market Cap of Williamson Magor is: 113.78Cr
Book Value is 92Cr

so include the associates not included (according to annual report march 2017) and book value doubles and loss becomes a profit..
Now if you look at the books company has taken close to 500-600Cr in loans to invest in Mcnally bharat engineering which means Williamson has assets now.. worth atleast 1000-1200Cr worth at current valuations..

Now 500-600Cr is on loan so Im sure the management would like to turn this around ASAP as it is incurring interest payout.. so we could see a turnaround in Mcnally bharat engineering .. (which is also attractively priced)

This will increase WM(Williamson magor)  consolidated profits and it will also reduce its debt (loaned money will be returned.. )

 If you see the charts.. we can see that Williamson magor is breaking out and setting new long term highs.. even when its reporting losses..

Conclusion:  Williamson Magor is about 100yrs old company..it broke itself into multiple parts and became an asset/holding company. over the years these associates have entrenched themselves into heavy engineering, tea business and battery business. They have other unlisted associates in the real estate business. As the parent holding company Willaimson magor has substantial holdings in all these associates which should be more than its current market cap of 110Cr. With the new understanding that being rich is good .. these closet asset rich companies could easily unlock their hidden wealth.. listed companies have sales worth 3500Cr which means we can expect 35x return for long term investors.. 

PN: this blog is for my own investment though process.. and not a recommendation for investors to buy/sell shares.. please do your own deep dive before investing and take advise from registered investment advisors.. I am not an Investment advisor..!!

Monday, December 04, 2017

Tilaknagar Industries: Picture Tau Abhi Baaki Hai!!

Tilaknagar Industries:
Market Cap: 268.85Cr
March 2017
Consolidated Sales: 490Cr 
Net Profit: -ve 276Cr(loss)

Tilaknagar is up about 100% from its 52 week low 10.2

Tilaknagar Industries Ltd. (TI) is a leading player in the liquor industry and manufactures Indian Made Foreign Liquor (IMFL). Established in 1933 as Maharashtra Sugar Mills Ltd. (MSM), the company transitioned to the liquor business in 1987. Over its 75 year existence, TI has grown to be an organisation committed to quality, excellence and integrity.

TI which is the erstwhile "The Maharashtra Sugar Mills Limited" (MSM) was promoted in 1933 by the illustrious industrialist and visionary Shri Mahadev L Dahanukar popularly known as Babasaheb Dahanukar. The company was then engaged in the manufacture of sugar and allied products.

Babasaheb’s efforts were guided by noted freedom fighter Lokmanya Balgangadhar Tilak, and he named the factory complex 'Tilaknagar' as a token of respect for Lokmanya Tilak. The company had an unfailing record of paying dividend for more than 50 years. In deference to the policy of the Government to have all sugar businesses in the country under the control and management of Co-operative Societies formed by farmers, the Company had to stop its sugar business in 1987.

Tilaknagar Distilleries & Industries Ltd. was promoted as a 100 per cent subsidiary of The Maharashtra Sugar Mills Ltd. The year 1973 saw TI diversify into the businesses of Industrial Alcohol, Indian Made Foreign Liquor (IMFL) and Sugar Cubes. Both Maharashtra Sugar Mills Ltd. and Tilaknagar Distilleries & Industries Ltd have been merged to form Tilaknagar Industries Ltd. with effect from August 6, 1993.

Since then TI has been engaged in the business of manufacture and distribution of spirit and Indian Made Foreign Liquor (IMFL). There has been no change in the promoter of the company. The ‘Dahanukar family’ continues to be the promoter of TI(Tilaknagar Industries), sharing the same vision and values of the founders.

Due to its core competency in alcoholic beverages and conscious efforts, TI swiftly established its distinct identity in the liquor industry. Today TI’s brand portfolio consists of unique and diverse brands that enjoy excellent consumer preference solely due to their quality and value for money.

Looking at the long term charts we can see that TI is quoting close to lifetime Lows..
999EMA (5 yrs exponential moving avg) is: 24.89
On 27th Nov 2017 TI days high was 25(above its 5 yrs EMA) stock closed @ 23.95
looking at the chart the stock seemed to have bottomed out...

Looking at the consolidated balance sheet: we can see the reason for dismal share price..

We can see that:
- Reserves are negative. the book value is -ve... company seems to have run out of reserves as it has been reporting losses for past few years..(visible in income statement)
- Long term debt 190cr (2017) is lowest in past 5 yrs.. looks to be a good development but short term debt 633cr (2017) is at highest in past 5 yrs. As we will see the company is having problem raising finances.. and seems to be using short term loans to meet its funding requirements.
- Capital work in progress of 124Cr ( for past few yrs) for a company with 509Cr of Tangible assets is way too high.. something is not right with this number.. either the capital work in progress is actually on hold.. or something else.. 
- Bonus in Equity share is 108Cr while equity is 124.75Cr so 86% of equity capital is bonus.. so the company seems to have given liberal bonus to shareholders and it indicates a shareholder friendly management.

Income statement is also not a pretty picture.
- sales have increased to 490cr (2017) from 461cr a growth of 6%..
- cost of Material/Total revenue = 62% (2017) Vs 44% (2015)
clearly a price increase is required..

- Finance cost has increased to 156.4cr(2017) from 125cr(2016)
Important to understand that interest cost is different from finance cost.
Finance cost = interest cost + other finance related expenses.. dont know if repayment of loans is also included in financial cost?.. having said that in AR-2017(Annual Report March 2017) the debt has increased..

Total debt 31 March 2016: 945.125cr , 828.45cr (secured debt including interest due) & 116.66cr unsecured debt (including interest due)
Total debt End of 31 March 2017: 1077.348cr, 970.73cr is secured debt(including interest due)  + 106.61cr (unsecured debt including interest due)

so there is an increase in debt by 132.23cr.., unsecured debt is down by 10cr..

Sept 2017 Quarterly  results(not yet out) include half yearly data and balance sheet data.. so we will get some idea about how things have progressed.. in past six months.. Personally I feel we will not see a reduction in debt.. as company still needs additional cash for working capital.. we might however see an increase in topline sales..

Till now there is nothing to say that tilaknagar is still tumbling down the rabbit hole or its digging its way out .. well I was looking at the financial ratio data..

ROA(Return on Assets), ROE(Return on Equity), ROCE(Return on Capital Employed) all are deep in negative territory.. and that's not a good sign..

There is however one Financial Ratio: Cash Conversion cycle... which has turned -ve (and that's good) -ve 41.18

Cash conversion cycle is nothing but : Net Current Assets. A -ve net current asset means the company is generating a float from its operations. Current Assets -Current Liabilities.
The Company in its every day operations buys raw material(inputs) and Sells its product(output)

The raw material seller (input provider)gives a  say 60 day payment period. (current Liability)and
The Product Buyer (Output buyer) also asks for a 60 day payment period..(current Asset)

Now if we say Ask the Input provider for 70 Days payment period.. And(increasing Current Liability)
we ask the Product buyer also to pay by 45 days ..that means effectively (decreasing Current Assets)

70-45 = 25 days... I as the producer will get 25 days float!!. interest free... effectively the 70 day payment period provided by the supplier is enough for me to sell the product and get the payment back.. and infact I can earn 25 Days of Float!!..

Looking at the cash conversion cycle.. it looks like Tilaknagar is generating a 41 day float..
total sales is 490Cr assuming 200 days in a year (stock market is open for 200 days in a year)
that's like 2.45Cr of sales in a day.. float of 41 days means = 41x2.45 = 100.45Cr of float (1 day)

Now you might say all this is wishful thinking .. well lets look at a Super Blue Chip Like Hindustan Unilever Ltd and look at its cash conversion cycle..

Holy Cow!!!..
Cash Conversion Cycle: -ve for past 10 yrs..
10 yrs Avg Cash Conversion Cycle for HUL: -ve 30.94!!
and look at the ROCE, ROE,ROA.. Off the Charts!! HUL is like google.. generates only free cash !!!

Also March 2017 Annual report indicates some big name investor (Chug family) invested in Tilaknagar Industry stock..

Conclusion:  Tilaknagar is still swimming with the sharks.. but if you see carefully the management is improvising.. changing strategy .. looking to turn around the ship .. towards safer waters.. Its still not shipshape .. but within a few years I bet we will not be able to recognize Tilaknagar. Company was formed in 1933 and has faced tough challenges before.. Mansion House is a well established Leading Brand of Brandy.(2nd largest selling brandy in India). Mansion House Whiskey is also very good!! (I dont drink but my dad does)  I'm sure the current management has the tenacity to come out of this in flying colours.. Long Term INVEST.. CHEERS!!

PN: This blog is not for suggesting or giving any investment advice.. it is more of a time log of my investment journey.. Pls do your own deep dive and get advise from a SEBI registered investment advisor  (I am not an investment advisor!!)

=happy Investing