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Tuesday, January 12, 2010

Dark Horse: Regency Ceramics



These are "Penny Stocks" with potential of upside and downside. Unlike true penny stocks Regency Ceramics is an established company of 25 year history which is reporting losses and hence available at a discount. Here is the story:

Regency Ceramics:  Listed in BSE and NSE.
CMP: 10.05 
Market Cap: 13.32Cr
Sales TTM(12 Trailing Months): 159.99Cr
Debt March 2009: 137.31Cr
Operating Profit TTM: 0.15Cr
Gross Profit TTM: 5.12Cr
Interest TTM:13.22Cr

Promoters have recently (Dec 2009) converted 15.89Cr of unsecured loans by the promoter to Regency Ceramics into Equity resulting in additional equity of 1.28Cr shares of 10Rs each.
With the increase in paid up capital to 26.44Cr from 13.59Cr.  Promoter shareholding has increased to 72.22% (19.09Cr of Equity)
The price at which new equity is issued to promoters is 12.37 per share.
Promoters have converted 15.89Cr of interest bearing loans to equity at 12.37 per share (as per the Scheme of Arrangement)
Right right now you can buy the stock from the market at approximately 25% discount to the promoter buy price.

The other points worth consideration regarding March 2009 numbers.

- Secured Debt of 115Cr
- Unsecured Debt: 21.7Cr (15.89Cr to be converted into Equity)
- Net Current Assets: 50Cr (Market Cap is just 26.44Cr considering conversion of debt to equity of 15.89Cr)
- Inventories 32Cr
- Cash and Bank balances: 12.48Cr

- Company in the good old days March 2006, March 2005 reported other income of 4.5Cr & 4.89Cr respectively which included 1.4Cr amd 1.55Cr of lease rental income. Regency Ceramics had operating profits of 18Cr
- Regency Ceramics is one of the largest Ceramic tile manufacturer in India. It has a gas based ceramic tile manufacturing plant with capacity of  250,000MT per annum
- Regency ceramics also merged an entity called Regma Ceramics which produces valued added large dimension tiles and with a capacity of 100,000 MT per annum which would increase its tile manufacturing capacity to 350,000MT per annum.
- Year 2004 and 2005 Regency Ceramics was a divident paying company with divident payout of 15% Rs 1.5 per share with share price ranging around  Rs 30 - 35/=.
- The company was also the largest Ceramic Tile manufacturer in India with a Gas Based Plant with supplies from KG Basin by Gail. With the large amount of gas being discovered in KG basin production of ceramic tiles at 100% capacity should not be a problem. Current Capacity utilization would be around 60% so we can expect a topline growth of 70% with capacity utilization of close to 100%
- Regency Ceramics is reporting losses in March 2008 but receives special award in recognition of outstanding export performance for the year 2007-2008 from the Ministry of Commerce (CAPEXIL) Govt of India.


I personally think this (10/=) is a great price to get into the stock and 1-2 years down the line Regency will be a 15% divident paying company with stock price around atleast 30-40 Rs per share. Might as well hold on to the stock as the promoters do give out generous dividents.

Company Website Link

6 comments:

Purushottam said...

hi i agree regency creamics can be turnaround.. but have to wait..
Can you share your view on my pick on my blog..

url :
http://whatsinstock.blogspot.com/2010/09/grauer-weil-value-buy.html

What'sUp Prahalad said...

Purushottam:

Grauer and Weil
CMP: 100
Market Cap: 228.18Cr
Sales March 2010: 239.78Cr
Gross Profit: 26.19Cr
Net Profit: 12.57Cr
Debt: 91.74Cr
ROCE: 9.68%

Promoter shareholding increase is really good.. actually it would be illegal for promoters to buy more than 4.99% in any given year.. as it would trigger an open offer.. so this is surely something that SEBI is unaware of..

having said that the company has EV= 228.18+91.73-2.6 = 317.5Cr

if what you say is true then the company has property worth 750Cr .. unfortunately it will not help individual investors unless the property is sold..

company is definitely being acquired..by promoters.. and good for long term investment.. right now it is fairly priced..

=happy investing

Anonymous said...

Dear Mr.Whatsup,

Can you throw some light on the current situation of Regencry Ceramic. Do you still believe that it is a good buy? When do you think they will start making profits? I am quite scared to buy a loss making penny stock unless there is some good future for it.

Thanks & Regards,

Dhinakar

What'sUp Prahalad said...

Dhinakar:

Regency offers Value as the stock is selling at throw away prices..

companies take time to recover and I expect Regency will but might take some more time..

I would hold .. and do not buy aggressively .. wait for the turnaround (quarterly results.. or positive guidance or accumulation (reduction in number of public shareholders are indicators to accumulate.. )

In the mean time you can buy other ideas that have shown positive results Pitti, GAEL, Jayant etc..

=happy investing
whatsup-indianstockideas.blogspot[dot]com

Anonymous said...

Dear Prahlad,

As much as I appreciate your efforts in bringing forward quality stocks like GAEL backed by your analysis, stocks like Regency have disappointed. What do you suggest we do with Regency now? It has been several quarters with losses...not all loss making companies make a turnaround. What do you suggest we do now? And if you believe that this company will turnaround, what are your reasons?

Kind regards.

What'sUp Prahalad said...

Anonymous:

One of the important functions of incorporating a company is to reduce tax outflow..

IF you see the latest Sept 2010 Quarterly results..

Deferred Tax liability Sept 2010: 7.22Cr
Deferred Tax liability March 2010:10.27Cr

So reporting losses is one of the way's to reduce tax outflow..
====================
I personally feel there is value that will be unlocked from Regency but will take time as the company still has deferred tax liabilities which can be written off by reporting losses..
====================

If you are looking at near term returns you should look at Jayant Agro organics as well as Gujarat Ambuja Exports where the mandate seems to indicate higher levels of earnings in the near future along with Value unlocking..

Please note:
Investing always expects you to go against the norm.. patience is a necessity and time period of returns cannot be really determined.. as they are not written in stone..

Its always important to "Never Overextend" your financial condition..

What is your avg cost of holding Regency Ceramics?

=happy investing
whatsup-indianstockideas.blogspot.com