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Thursday, November 10, 2011

Jayant Agro Organics: Sept 2011 Results

Jayant Agro Organics reported its Quarterly earnings for quarter ending Sept 30, 2011 on Nov 9,2011. 
Let us see how the company is progressing and try and get a better understanding of how the company is doing.

First a lot of earnings for Jayant agro are in the subsidiary company specially Ihsedu Agro Chem. Ihsedu Agro Chem is a castor seed processing company located in the largest castor growing district in the state of Gujarat.
Ihsedu Agro Chem was a Gujarat Govt company in castor seed crushing. The promoters of Jayant Agro organics bought the company from Gujarat Govt.. increased capacity and added additional processing capacity. 

Castor Seed crushing capacity in the heart of castor growing district is a big advantage for  Jayant Agro specially in castor oil and related business where availability of raw material plays an important part.

So in case of Jayant Agro we will be looking at the "consolidated results" of Jayant as there is a pretty big difference between Jayant Agro standalone result and Jayant Agro consolidated results.


Another unique issue is that Jayant reports 3 months, 6 months 9 months and 12 months consolidated results. 
So Sept 30,2011 result includes the result of June 30,2011. Well lets see what do we have here..

Looking at the results for Year ending March 2010, March 2011 and 3 months ended June 30,2011 and 6 months ended Sept 30,2011 .. it looks like its business as usual with Jayant Agro. 
- PBDIT Margins are consistent around 5%
- Depreciation is decreasing in a gradual fashion.
- Interest payments are steady and hovering just below 2% level.
- Taxes are also around 1%
- Net Profit is also pretty steady at 2%

So when we look at the margins the business is making steady income and everything is on autopilot. 
On the sales front the company sales are increasing by leaps .. 
Year end sales March 2011 is: 1171.99Cr
6 months sales Sept 30,2011 is: 969.44Cr
6 months sales Sept 30,2010 is: 587.09Cr 

So on a year on year basis sales have jumped approximately 65% on a year-on-year basis.  Infact in 6 months ending Sept 30,2011.. Jayant has already clocked sales equal to 82.7% of sales for year ending March 2011.. So looks like demand is growing by leaps and Jayant is well positioned to supply castor oil and its derivatives to the market.

Interest rates: Looking at the interest rates its amazing that Jayant's interest rates are keeping pace with 65% topline growth.. generally capital requirements are steady across quarters but in case of Jayant we see that capital requirements increase every quarter and culminate with largest capital requirements for the year end figures.. I also remember that in the AGM there were questions raised as to why the interest payments are rising and keeping pace with growth in topline. Management said its under control and its part of doing business.. and not something to be worried.

Well after some more digging it looks like interest payments are about 2.02% of raw material requirements..(steady for March 2010, March 2011 and now Sept 30,2011..)  Interestingly there is a 2% interest rate discount for exporters by GOI .. Since India has high interest rates to keep inflation under check.. just so that exporters are not at a disadvantage exporters are provided with 2% interest rate discount.. Well putting all the  pieces together .. looks like Jayant Agro's interest rates are going to keep  pace with topline growth. so don't worry about it!! (wink wink) 

Interestingly net profit margins are also 2% .. Now that is a question I certainly don't have an answer for.

Conclusion: Jayant Agro is favourably placed with a flood of demand for bio based products. Castor oil and its derivatives because of their unique properties already had a steady demand.. now with this increased awareness for bio-renewable inputs .. Jayant Agro is front and center of a demand tsunami.. We can expect Jayant to report steady profits and also expect higher dividend payouts. 
Ihsedu Speciality chemicals the next generation castor oil derivatives subsidiary has not yet started commercial production. If and when it starts it will improve the margins of Jayant Agro.  Also a sebacic acid plant with 8000MT capacity is considering only 1 shift.. but max capacity could be 3 shifts so we could see 24,000 MT as actual production for sebacic acid and that would translated to some really interesting numbers.. 
(I think I am running way ahead of reality.. considering that the plant has not yet started commercial production :--) )




9 comments:

satheesh said...

it seems it is almost a market leader in its segment atleast in india then why cant it raise the prices bcos npm 2 % is too risky

What'sUp Prahalad said...

Satheesh:

Even though it is a leader.. there is a lot of competition.. at the basic castor oil and first generation derivatives..

Hopefully jayant should get the sebacic acid plant working and then we should see some margin expansion

jayant might have 25-30% shareholding in castor business..

=happy investing
whatsup-indianstockideas.blogspot.com

Anonymous said...

http://www.sebacicindia.com/

claims 10000MT/year

What'sUp Prahalad said...

Anonymous:

Sebacicindia and Jayant have a common source.. TeamPro..

http://teampro.org/agriculture.html

This is my speculation ..

Also check out Jayant Agro castor derivatives project..
http://www.gujagro.org/oil_seeds.htm

We need to be patient.. and we can see good growth for sure..

=happy investing
whatsup-indianstockideas.blogspot.com

Vijay Chandrakar said...

Hi Prahalad,

I was trying to make some sense out of the cash flow from operating activities of Jayant in the last 4 years.
Here are the numbers:

Net Cash (in Cr.) From Operating Activities 16.54 (2011) -76.44 (2010) 85.27 (2009) -22.16 (2008).

This shows that Jayant is not generating enough cash from its operations (except in 2009) for quite some time...Is this not concerning? Am I missing anything here?

Also considering the low net margins of around 2%, is this a turnaround play where we are betting on Castor Derivatives which will boost margins?

Regards,
Vijay

What'sUp Prahalad said...

Vijay:

The fact is "Castor" market is dominated by India.. (globally)

The current Capacity of Sebacic acid will give a topline of around 200Cr only ..so To expect the castor derivatives plant to suddenly change the topline from 2000Cr (6 months sales is about 969Cr) to 3000Cr or more is next to impossible... we might see profits at close to 50Cr

Jayant is under reporting its profits .. this 2% profit margin is nothing but the govt export incentives ..
I remember attending the AGM for Jayant in Mumbai and.. there were questions about why debt levels are increasing.. what the management said is that debt levels are high as that is how business is done.. but frankly speaking money needs to be recycled .. on a monthly or quarterly basis (at the least) so the debt levels should not increase with sales..

The real reason is govt is giving exporters incentives in the form of 2% payback on loans taken for export. since Jayant exports 90% or more of its produce.. the management is showing higher levels of debt. (to get the export incentives)

Same is the case with GAEL where exports are around 500Cr and we might see debt at close to 500Cr ..(this is recent development 2010 as govt of India had to change the incentive structure )

Jayant is a vertically integrated player in castor are..
- They have castor seed crushing plant in the largest castor growing district in India..(they bought the Govt of Gujarat seed crushing plant and expanded capacity..)
- All this gives Jayant the ability to be the largest player in the market (which can be seen from the fact that Solvent Extractors Association (SEA) has given the award to Jayant for castor meal consistently for past few years (before that it was BIOTOR who used to receive this award..)

2% profit margins is under reporting by jayant .. it should be close to 10%

So what I can say is be patient and hold on.. frankly speaking GAEL management seems to be more active and looks like GAEL will give good returns .. before Jayant.. (just my hunch..)

I am equally invested in both .. though a jump from jayant (85 levels) to GAEL(20-22 levels) is I think a great short term move.. (for those who want to take advantage of GAEL dividend which will be sometime next month.. feb 2012 )

Tata Communications.. and NHPC are also must have stocks..

FYI GAEL is also a large/major player in castor market..

=happy investing
whatsup-indianstockideas.blogspot.com

Vijay Chandrakar said...

Prahalad,

Ok agreed that Jayant is under-reporting its profits to get some short term benefit. But, should a value investor wait for a promoter who under reports profits to report the profit correctly. Jayant may continue to do this for next 3-4 years...so what should an investor do? I am not sure if we call such scenario as value investing. Pls help me understand this.

Vijay

What'sUp Prahalad said...

Vijay:

Even with under reporting. twelve trailing months (TTM) net profit at consolidated basis is: 30.9Cr ie an EPS of Rs20.60 ..

so even on under reporting of profits.. the stock is under valued..

When I attended the AGM meeting the shareholders were pretty active..(vocal) and most likely we will see higher dividend payouts..

looking at the facts that this is a 2000cr sales company with market cap of just 140cr and 78.69cr of PBDIT and 30.9cr Net profit all TTM numbers means we have deep value..

see there are just 6372 shareholders means actually a large set of shareholders are promoter and friends..

We might not see the promoter shareholding rise.. as its already in the hands of the promoter and friends..

Pls note these are my personal views based on publicly available information..

=happy investing
whatsup-indianstockideas.blogspot.com

What'sUp Prahalad said...

Vijay:

I have a pretty grim view about global growth and .. with peak oil we will see some sectors decimated..

I think Jayant will be able to withstand this downturn..because of its unique position as a castor major in largest castor growing country in the world.. and backward integration..


=happy investing
whatsup-indianstockideas.blogspot.com