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Friday, August 24, 2012

Jayant Agro Q1 June 2012 Result Review

Jayant agro Q1-2013 results for quarter ending June 2012 were declared on August 13,2012.

Let us review the same..
1. we look at consolidated data as Jayant has materially significant subsidiaries (link to old blog post describing materially significant subsidiaries
2. Jayant reports 3,6,9 and 12 months data .. it does not report quarterly numbers so historical comparisons are different..

1. There has been a significant  increase in margin 7.08% PBDIT margin compared to 4.55% (Y-Y) or 5.27% (year ending march 2012)
Is this margin expansion sustainable?.. or..
-Its one time due to a bumper castor crop in India? or
-Its due to the derivatives business which has entered commercial production and amalgamation with Jayant Agro
Only time will tell.. right now we can just appreciate the fact..that its a significant change and we need to confirm this margin expansion sustains in the future.

2. The other more important thing is Sales number for the quarter?.. at 464.62Cr it is less than 482.92 reported in June 2011. This is a cause of concern.. is there a drop in demand? or is Jayant holding back sales to get a better price.. after all.. if you see June 2011 result 4.55% PBDIT margin is less than the year end March 2012 PBDIT margin of 5.27%

I must mention govt has increased Excise duty from 10% to 12% and these numbers are "Net of excise duty"

Clearly June is definitely one of the weak quarters for Jayant. so maybe they are holding out for a better price (my guess)

For consolidated results
Sum of "stock in trade" and "inventory" for June 2012 is: 69.69Cr
Sum of "stock in trade" and "inventory" for June 2011 was: 27.46Cr

So there is a 153% increase in inventory and stock in trade .. this could indicate Jayant holding back sales in the form of inventory and stock in trade.. It could also be an indication that castor seed prices will increase going forward..

Capital Employed Unallocated!! and Castor oil/Derivative margin

1. Capital employed has an unallocated writeback of 30.51Cr (consolidated) and 23.32Cr writeback at standalone result..
If we look at the year end March 2012 unallocated capital employed was 37 lakhs expense..

Now we all know that Ihsedu Speciality chemical was merged with Jayant Agro and the actual merger approval was on July 6,2012.. I Think !! this 30.51Cr is actually some kind of income generated by Ihsedu speciality chemicals during the time period it was commissioned but not yet in commercial production.. (about 1 year) and since accounting is started after commercial production this income generated before commercial production has come in as an unallocated Capital being written back..
(I Assume this ) Could have been implemented as an exceptional One time income also.. but then we know how conservative the promoters are with regards to profit figure!!

2. The other question that I was being asked is .. why? Why is income from Castor oil business more than income from Castor oil Derivatives business?..

June 2012 Segmented Results
Castor oil  : 14.87Cr (Margin 9.67%)
Castor Oil Derivative: 14.09Cr (Margin 4.70%)

June 2011 Segmented Results
Castor oil: 7.45Cr (Margin 6.87%)
Castor oil Derivative: 12.39Cr (Margin 2.49%)

One thing we must understand is the structure of Jayant Agro
Castor oil Derivatives business has been merged with Jayant Agro.
Castor oil processing business is in a 100% subsidiary Ihsedu Agro Chem Pvt Limited.
So at a stand alone level profits are in the derivative business while at the consolidated level the 100% subsidiary castor oil income kicks in..

The important question is .. should Jayant Derivatives business have high margins or should Jayant castor oil business have high margins.. which is beneficial to the company?..

Indian castor oil processing companies are generally into 1 and II generation derivatives(castor oil processing) while Jayant has moved on to III generation derivatives (castor oil Derivatives)
Castor oil derivative competition is with companies that import castor oil from India

By keeping the castor oil  processing margin high:-
It gives Indian companies high margin in castor oil business discouraging them to invest additional capital and enter the castor derivatives business.
It also increases the cost of raw material for importers of raw castor oil ..thereby giving Jayant agro's derivatives business a chance to develop its new business.

So long term its a great idea to keep the castor oil margins high discouraging local derivatives production and hence maintain the location advantage for castor derivatives business.

Bonus profits!! Audited and Unaudited result review March 2012

According to Audited year ending March 2012 (reported in August 2012)
Consolidated Net Profit: 31.35Cr
According to unaudited year ending March 2012 (Reported in May 2012)
Consolidated Net Profit : 27.54Cr
So we have a 13.8%  ie. a 3.81Cr increase in Net profit between audited and un-audited results.. Most analyst will review the March year end numbers under reporting the net profit numbers.

Conclusion: Jayant Agro is just about starting to perform.. with the merger of derivatives business completed with Jayant we should see steady increase in topline and bottomline. We still need to be patient and maybe we need another year or two to see the real fruits of our investment March 2013 can be conservatively be expected to report 40Cr net profit and Ideally 50-54Cr and exceptionally well would be above 55Cr

Right now the idea is to continue accumulating the stock at the deep discount price the stock is available..The promoters are doing its hand over fists.. and we just need to keep on chipping along..

Jayant Agro organics has strong promoters with great vision.. the Udeshi family holds patents for efficient sebacic acid production process till 2020 .. castor processing plant in Banaskantha the largest castor growing district in Gujarat ensuring steady supply of raw material..
Alliance with ITOH oil for marketing green chemicals.. I can see Jayant as a Future Ready!! company. 

The current peak energy situation is breaking down the structure of traditional business while Jayant is going to flourish in this environment..  No GUTS No GLORY!!

=happy investing

unaudited year end march 2012 result
Audted year end March 2012 result
Q1 2012-13 June 2012 result


Anonymous said...

Dear WhatsUP Ji,

Thank you for the analysis. Don't JAOL give individual balance sheet details of its subsidiaries in Annual Report? I think we can figure out performance of its subsidiaries then.

What'sUp Prahalad said...

Anonymous ji:

subsidairy annual reports are available in company website.. having said that year ending march 2012 annual reports have not been published yet..

=happy investing

What'sUp Prahalad said...

It would be interesting to know how much did jayant agro pay for the 26% stake buyout from
MITSUI for ihsedu speciality chemical pvt limited!!

=happy investing

Kalpesh said...

Amazing analysis as alwys...WOW...
too good...i had invested in it..made some good profits...looking fowrd for another dive...

btw...I knw u are v much with Jayant and GAEL ...but just out of curiosity..hv u caught any new stock in ur eye...as mkts have gone down n come up..so valuations must hv had gr 8 impact...soo

What'sUp Prahalad said...

kalpesh ji:

actually I am pessimistic about growth due to peak energy..

unless the investment can stand the test of time in peak energy environment..

I am restricting myself to just the best buy recommendation..

gael,jayant,nhpc and tata comm

which is one reason no new investment ideas..

=happy investing

Anonymous said...

Dear whatsupji, Your Peak energy concept. One of your favorate stock is nhpc. Did you studyied another stock in the same sector SJVN?Every aspect I think SJVN is far better than NHPC.If time permit can you compare with both stock??

WhatsUp said...

Anonymous ji:

SJVN is like NHPC only smaller..

See there are only x amount of sites where hydro power stations can be built..
SJVN has a and NHPC has b
where b>a

one cannot ramp up or create new hydropower stations.. on the go.. what I see is that NHPC will always be the dominant player..

and any price increase will be multiplied by "b" for NHPC and "a" for SJVN.. since NHPC has higher capacity it will be able to show higher growth in profits..

All said and done SKVN is also a great Stock.. but just because of size I am going with NHPC..

you can invest more in sjvn if you so desire.. i think they are both equally great..

=happy investing

Anonymous said...

Hello WhatsUP Ji,

Today I've received JAOL Annual report. Few observations:

1. The Chairman's Message is motivating and positive.

2. Balance Sheets of subsidiaries not attached. Will be made available on request or on website.

3. A hidden easter egg. I'm sure you can find it.


What'sUp Prahalad said...

Anonymous ji:

What is the easter egg??..

pls share.. my system is down.. so not got a chance to read it..

=happy investing

Anonymous said...

WhatsUP Ji,

I was looking at subsidiaries balance sheets at JAOL website. Ihsedu Agrichem has declared 25% dividend (to be approved at AGM of subsidiary on 24 Sept 2012). This comes to about Rs 1.375 Crores. I think JAOL will account for this dividend income in 2012-2013 accounting period.

What'sUp Prahalad said...

Anonymous ji:

Consolidated Results for March 2012 would have already accounted for the profits for Subsdiary Ihsedu Agro chem.. so the profits are already in the books .. the money however would flow into jayant (on stand alone basis.. in 2012-13)

ihsedu agro is a 900Cr sales subsidiary..

its surprising how ihsedu and jayant report profit margin of 1-2% which is extremly low..

I expect margins to improve and also expect maybe a bonus.. if you see the annual report.. authorized equity capital is increased by 25Cr
Authorised Share Capital of the company is being increased by ` 250,000,000 consisting of 50,000,000 equity
shares of ` 5/- each subsequently to the year end as necessary filing with the authorities was done based on
the order of the Bombay High Court.

current Authorized equity capital is 14.5Cr add 25cr to it we have Authorized equity capital of 39.5Cr

Issued Capital is 7.5Cr .. so we can expect (I think a bonus of 1:1) at the minimum..

Why you may ask??.. I think its because ISCPL (Ihsedu Speciality Chemical Pvt Ltd) had a rs 20Cr capital.. and we just merged ihsedu into jayant..so jayant's capital needs to also increase by 20Cr ??(Or so the high court thinks)

-hold or buy more on dips..

=happy investing

Anonymous said...

Hahaha..what do you think my reference to "Easter Egg" was? :)

What'sUp Prahalad said...

Anonymous ji:

I have no idea about the easter egg.. can you state in simple english.. for us..

=happy investing

Anonymous said...

WhatsUP Ji,

In software (& usually in software games), the developers hide a goodie or a new functionality which normally not to visible normal user. This is called Easter Egg. Cheers.

What'sUp Prahalad said...

Anonymous ji:

I know what an easter egg means in software applications..

the question is what is the easter egg in jayant annual report?

you can email me at whatsupPrahalad@gmail.com if you want it to remain hidden!!

=happy investing

Anonymous said...

dear sir, One of your strong sell stock Godrej Ind today touched 300 !!! really surprising what is driving mkt fundamental or money power ??

What'sUp Prahalad said...

Anonymous ji:

Godrej Accounts are suspect and one can see.. a large chunk of profits are one time exceptional items..

Stocks always overshoot on the upside and on downside..

Its best to get out of Godrej Industries..

having said that Godrej Industries stock will do well because of good connections..(my personal view..)

AVOID AVOID AVOID Godrej industries

=happy investing