Jayant Agro: Factor of 3!! Under Reporting Profits at standalone levels

I was just trying to read through the latest Annual Report year 2012-13 of Jayant Agro Organics 

you can get a copy of the Annual Report from Company website here (Link)

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Looking at the stand alone Income Statement for Jayant Agro Organics

Year Ending March 2013

Total Revenue: 1228.21Cr

Cost of Material Consumed: 504.03Cr

Value Add Margin: (1228.21-504.03) = 724.18Cr

Value Add Margin as percentage of sales: 724.18/1228.21 = 58.96%

Net Profit Reported: 27.73Cr

Net Profit Margin as percentage of sales: 27.73/1228.21 = 2.25%

Jayant Agro has a Value Add Margin as percentage of sales of: 58.96% 

while Jayant Agro  reports a net Profit Margin as a percentage of 2.25%

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Looking at another of my Best Buy Recommendations GAEL Annual Report (Link)

Income Statement for Gujarat Ambuja Exports:

Year End March 2013

Total Revenue: 3014.07Cr

Cost of Material Consumed: 2069.10Cr

Value Add Margin: (3014.07-2069.10)= 944.97Cr

Value Add Margin as percentage of sales: 944.97/3014.07 = 31.35%

Net Profit Reported: 113.35Cr

Net Profit Margin as percentage of sales: 113.35/3014.07 =  3.76%

Gujarat Ambuja Exports(GAEL) has a Value Add Margin as a percentage of sales of: 31.35% 

while GAEL reports a Net Profit Margin as percentage of sales of: 3.76%

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GAEL margin reporting looks true.. while Jayant Agro margin reporting looks suspect.. 

Well the answer is just a step below..

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Jayant Agro 2013:

Cost of Material Consumed: 504.03Cr

Purchase of Stock in Trade: 502.43Cr

Stock in Trade as % of Cost of Material Consumed: 502.43/504.03 = 99.68%

Jayant is carrying as "Stock in Trade" inventory equal to 99.68% of its full year's cost of material consumed.

Next year's Cost of Good Sold = Zero (as its already included in this year's expense)

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GAEL 2013:

Cost of Material Consumed: 2069.10Cr

Purchase of Stock in Trade: 411.34Cr

Stock in Trade as % of Cost of Material Consumed: 411.34/2069.10 = 19.88%

GAEL is carrying as "Stock in Trade" inventory equal to 19.88% of its full year's  cost of material consumed. 

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Lets get this clear.. 

Jayant has sales of 1228.21Cr and the cost of material for this sale of 1228.21Cr is 504.03Cr .. and in the expense section is purchase of stock in Trade worth 502.43Cr which is very very close to the cost of material consumed for the whole year..

surely this is a lot of inventory.. that is being carried forward.. infact in the year ending March 2012

Jayant "Cost of Goods Sold" was 678.71Cr while inventory was 775.19Cr .. 114.21% of last year's full year's "Cost of Goods Sold"..

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Assuming "Inventory at a level of 20% (similar to GAEL) 

Cost of Material Consumed: 504.03Cr

Suggested Purchase of Stock in Trade: 20% of 504.03 = 100.80Cr

Difference in "Purchase of Stock in Trade" = 502.43-100.80 = 401.63Cr

Assuming everything else is the same in the income statement of Jayant Agro.. 

Net Profit should have been: 401.63+ 27.73 = 429.36Cr

Surely a net profit of 429.36Cr is way way out compared to reported profit of 27.73Cr

Lets take GAEL again into the picture: 

GAEL had Value Add Margin as percentage of sales at 31.35% and Net Profit as a percentage of sales at 3.76% (11.99%)

we know that Jayant has a Value Add Margin as percentage of sales at 58.96% let us assume that Jayant will have a Net Profit as a percentage of sales at 7.01% (11.99% of Value Add margin)

Ideal Net Profit for Jayant Agro Organics (standalone): 86.17Cr which translates to EPS of 57.44 per share

Conclusion: Jayant is under reporting profits by a huge number by increasing costs.. Though a company is allowed this level of flexibility .. we as investors can see the under reporting done and get a stock at an unbelievable discount to its real value..

Jayant has a Market Cap of just: 108.53Cr and only 5235 shareholders.. Right now looking at the level of under reporting I can say Jayant is an easy 10 bagger!!

 

We as investors can also approach the management to report real numbers and help in value unlocking .. hence benefitting all investors..

PN: These are my personal views about publicly available information.. Please do your own deep dive before investing!!

Jayant Agro Organics AR-2012-2013: Where have the dividends gone?

I just received the annual report for Jayant Agro for year ending March 2013. (Year 2012-13)

It is also available in the company website link is here

as the title suggests we are looking at the dividends .. and looks like we are getting less dividends.. the question is how and why?

Lets look at the consolidated results.. proposed dividends (Page 64).

At a consolidated levels.. Jayant Agro has reported for the year ending March 2013 Dividend payouts of:

Interim Dividend: 1.595Cr

Proposed Dividend: 6.75Cr

Total dividend payout for year ending March 2013: 8.34Cr

Last year total dividend payout for year ending March 2012: 4.375Cr

Dividend tax payout has also increased to 83.23lakhs(Last year: 48.67 lakhs)

My concern is this:

Jayant Agro has declared (on a standalone basis) dividend payout for year ending March 2013:

Proposed Dividend payout: 3.37Cr 

Question is: when Jayant Agro at consolidated levels is reporting 8.34Cr as dividend payout .. why shareholders are getting only 3.37Cr .. this is all the more important because Jayant Agro and its subsidiaries are paying dividend tax to the Govt of India .. distributing the dividends to the shareholders (where majority shares are held by Jayant Agro Promoters) would make the best sense as you donot need to pay dividend tax again to Govt. as subsidiaries have already paid taxes.. 

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(for the sake of argument let us assume) It is quite possible that maybe there are subsidiaries where Jayant has less than 100% shareholding and this consolidated dividends are getting distributed through these "not 100% subsidiaries" and hence not available to Jayant Agro for distribution.

Jayant Agro has 3 subsidiaries:

1. Ihsedu AgroChem Pvt Limited  -- Shareholding: 100%

2. Ihsedu CoreAgri Services Pvt Ltd --Shareholding: 100%

3. Ihsedu Itoh Green Chemicals Marketing Pvt Ltd. -- Shareholding: 60%

Most likely place for the dividend payout to slip out from Jayant consolidated  is "Ihsedu ITOH Green Chemicals Marketing Pvt. Ltd." 

well Ihsedu ITOH reported revenues of: 16.32 lakhs and profit after tax of: 5.72 lakhs for year ending March 2013 .. surely the dividend payout could not have leaked from here..

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There is a possibility that Ihsedu Specialities Chemicals Private Limited: which was amalgamated in 2012 could have been the source of leakage of dividends.. but I was reading annual report of year 2011-12 when Ihsedu Specialities Chemicals Pvt Limited was bought in as a 100% subsidiary and then amalgamated into Jayant Agro. 

"Ihsedu Speciality Chemicals Pvt. Limited (ISCPL)

The Hon’ble High Court of Bombay vide its order dated July 6, 2012 sanctioned the “Scheme of Amalgamation”of ISCPL, a wholly owned subsidiary of the Company with the Company. The “Appointed Date” is October 1, 2011. Thus, from this date ISCPL stands amalgamated with the Company and the legal entity of ISCPL stands dissolved without winding up. Further, the entire business undertaking of ISCPL gets transferred to and vested in the Company"

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Even though the verdict was passed in July 6,2012 (technically it falls in the year 2012-13) the verdict clearly states that as of Oct 1,2011 ISCPL is dissolved into Jayant Agro.. so start of the year 2012-13 ie 1st April 2012 ISCPL was already amalgamated into Jayant Agro so dividend slippage through ISCPL is also out of question.

Conclusion: 

Jayant Agro at consolidated level has reported Dividend payout of: 8.34Cr .. there is no way that the dividends could have been distributed to minority shareholders of subsidiaries .. because as of April 1,2012 Jayant agro subsidiaries are 100% owned by Jayant and only subsidiary where there is less than 100% had no significant earnings for dividend distribution..

8.34Cr in dividends on an equity base of just 7.5Cr works out to a dividend payout of: Rs 5.56 per share (Rs 5 face value) actual proposed dividend payout is just Rs 2.25 per share which is just 40.4% of Rs 5.56

This year's AGM to be held on Sept 26,2013 11:00am M. C. Ghia Hall, Bhogilal Hargovindas Bldg.,

4th Floor, 18/20, K. Dubhash Marg, Mumbai- 400 001.

This question needs to be raised.. why dividend distribution is less to shareholders of Jayant when subsidiaries are reporting higher dividend payouts to jayant. there is zero dividend tax if the dividends are distributed to shareholders .. and everyone stands to benefit.

FII Activity In August 2013 - Still buying Indian Equities: Go Long!!

Contrary to what is being reported that the market is falling due to FII selling in the Indian Equity markets.. data reported by SEBI says otherwise..

FII Investment in Equities:

1 Aug 2013: FII Net Equities Investment: +ve 177.10 Cr

2 Aug 2013: FII Net Equities Investment: +ve 281.10 Cr

5 Aug 2013: FII Net Equities Investment: +ve 440.30 Cr

6 Aug 2013: FII Net Equities Investment: +ve 150.90 Cr

7 Aug 2013: FII Net Equities Investment: +ve 356.60 Cr

8 Aug 2013: FII Net Equities Investment: -ve 252.90 Cr

12 Aug 2013: FII Net Equities Investment: -ve 338.60 Cr

13 Aug 2013: FII Net Equities Investment: +ve 415.70 Cr

14 Aug 2013: FII Net Equities Investment: +ve 76.30 Cr

16 Aug 2013: FII Net Equities Investment: +ve 294.70 Cr

From 1st Aug 2013 to 16 Aug 2013 FII Equity Investment is: +ve 1601.20Cr 

FII have been selling in the debt market and thus the total FII Activity is -ve in the capital markets but Equity specific activity is Net Positive..

Conclusion: NIFTY on Friday 16 Aug 2013 closed at 5507.85 its advise able to buy at these levels.. instead of shorting