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Monday, August 25, 2014

Jayant Agro:Chart Reading: Predicting the future

As the markets are rising there are a number of requests for price targets.. which got me looking at the charts for Jayant Agro.. 

PN: Charts are predicting the future based on past history of stock price movement.. These predictions will only stand true if it follows historical price movement..

Personally I feel this is a breakout year for Jayant and we could see the stock become a multibagger..
I have taken the maximum possible range for my Exponential Moving Average i.e. 999
Since 200Day EMA is considered as 1 year.. (There are 52 weeks in a year,  considering only Monday-Friday= 260days ) minus the Holidays 60 days we get 200 Day EMA = 1 year..

So 999 Day is like 5 yrs (200 x 5 = 1000) 

So long term trend is 5 yrs and then I have taken the 200 day EMA for signalling...

3 year term: If you see the chart the peaks and troughs considered are:
2005 low: 34.04 .. 2008 High 122.75 (360.60% increase in 3yr period)

2010 low: 62.29 .. 2012 High: 152.50 (244.82% increase in 3yr period)

So the bull cycle starts when 200Day EMA crosses 999Day EMA from the bottom and lasts 3 yrs and we have 2 confirmed cycle in past 9 yrs..

Bear cycle starts when stock price falls below the 200Day EMA
FALSE START: If you see there is a False start in the middle 2007.. where the stock price did not go below the 999Day EMA and resumed its journey back up again.. to a new 52 week high..

Similar "False Start" in 2011-12 period giving traders a chance to dip in twice!! in the 3 yrs period doubling your returns!!
Conclusion: So the time period is 3 yrs.. Trigger is after the 200Day EMA crosses 999Day EMA .. till stock hits a new 52 week high (250-350% from base) and signals a sell when the 200Day EMA is broken.. 

Next cycle starts after the 200Day EMA falls below 999Day EMA and again  200Day EMA rises above  999 Day EMA. Next bull cycle start

Latest bull cycle started at 95.4 
Current Market Price:109.70
Current 200Day EMA: 102.65
Current 999Day EMA: 103.29
Target Price 250-360% from base of 95.40 = 238.40- 343.40
Time Period: 3 yrs starting June 2014 - till June 2017 

If you see the 999Day EMA(Green line)  its been continiously rising so even if on the outside the stock seems to be underperforming but the base 999Day EMA in past 10 yrs has increased from 34.04 to 95.04 which is extremely bullish for investors in Jayant Agro organics..

PN: As soon as the trend is known to the general public ..the rules of the game are changed.. so its quite possible that the trend no longer stands the test of time.. Please do your own deep dive before investing.

Sunday, August 10, 2014

Jayant Agro:Quarter 2014: Result Review

Jayant Agro results for quarter ending June 30,2014 is out. Let us review the results with horizontal (Y-Y)and vertical (% Sales)  comparision

Horizontal Comparision:
Jayant results are seasonal in nature due to castor seed being the primary raw material which is agro based input.. year on year comparision is the best option. Comparing the "Quarter June 2014 to  Quarter June 2013" results we get the following observation

Total Income from Operations: UP 14.88% (Positive)
Sales on a Y-Y basis has increased which is a positive development.

Total Expenses:                        UP 15.72% (negative)
- Cost of Material:                      UP 12.81% (positive)
- Purchase of Stock in Trade:      UP 49.59% 
- Change in Inventory of Finished Goods: UP 33.45%

Total Expenses are up 15.72% which is more than rate of increase in income (14.88%) so that's a negative development as costs(expense) has increased at a higher rate than sales increase eating into profits..
Sales increase: 14.88%
Expense increase: 15.72% 
Difference: 0.84%
Digging deeper into Expenses.. "Cost of Material" is up 12.81% which is positive as increase in "cost of material" is less than increase in sales (14.88%) Cost of goods is not the real reason for increase in expenses..
"Purchase of stock in trade"(up 49.5%)  and "change in inventory of finished goods"(up 33.45%)  seem to be the main culprit for increase in expenses.. (though employee expenses and other expenses have also increased at a higher rate than increase in sales..)

Profit from Operations: Down 4.67% (Negative)
The 0.84% increase in expenses has resulted in a 4.67% decrease in Profits from operations  since actual sales increase was 14.88% we should have seen an increase in profits.. so the actual drop in profits is like (4.67+14.88 = 19.55%) comparative decrease in profits..

Clearly the purchase of stock in trade and change in inventory has impacted profits in a big was as Jayant has leveraged operations. The only positive is that its not cost of goods but more of inventory and stock in trade doing the trick..

Other Income: UP 2140.68%
Huge spike in other income(294.65 lakhs Last year: 13.15 lakhs) .. looking at the results there is an interest income of 206.69 lakhs (2.06cr) which was missing last year (june 2013=0.92 lakhs). My take is that company used to report "Net finance cost"  ie. (Finance cost - interest income) and now they have separated the two due to new reporting regulations (I think).. so we should see increase in interest income and in finance cost.. 

Profit Before Finance cost: UP: 13.43% (negative)
Profit increase is less than the increase in sales.. so its negative  
Sales increase: 14.88%
Profit Increase: 13.43% 
Difference: 1.45%  while Difference in case of expenses was 0.84% Profit before finance cost is also being supported by 2.06cr Interest income.. So actuall Profit before finance is much worse..

Finance Cost: UP 80.40% (negative)
Finance cost as we discussed is up due to interest income going up.. lets reduce the interest income
True Finance Cost(2014) : Finance Cost: 1139.48 Less Other income: 294.65 = 844.83 lakhs
Finance cost (2013): 631.65 lakhs 
Increase in finance cost: (844.83-631.65)/631.65 = 33.74%

Clearly finance cost have increase at a rate higher than increase in sales or increase in expenses.. but then inventory has increased 
Real inventory (2014):(Purchase of stock in trade + Change in inventory of finished goods) (7207.76 - 5614.36)= 1593.4 lakhs
Real inventory (2013): (4818.32 - 4207.11)= 611.21 lakhs
% increase in inventory: (1593.4-611.21)/611.21 = 160.69%
On a Y-Y basis inventory (Purchase of stock in trade + Change in inventory) has increase 160.69%

Conclusion: finance cost has increased but so has inventory of goods.. so it could be stocking up for future sales or it could be a negative development due to pile up of the inventory (unsold goods) we will know in the future..

PBT: Down 32.20%
TAX: Down 45.39%
Net Profit: Down 25.09%

PBT,TAX, Net Profit all are down.. the good part is "Taxes are down" by a greater percentage than PBT or Net Profit.. my understanding that Modi govt has given tax incentives.. to corporates.. and looks like that is what is happening.. companies are reporting higher expenses and hence lower taxes..

Conclusion of Y-Y comparision:
Sales have increased 14.88% which is a positive..
Expenses have increase 15.72% but its not the cost of  goods but inventory and purchase of stock in trade which has resulted in increase in expenses..
Other income is up and finance cost if up.. looks like as part of new reporting guidelines..companies have to report interest income as a separate line item which has resulted in increase in finanace cost.. the other major cause of increase in finanace cost is due to increase in inventory or stock in trade(my assumption) based on sharp increase of 160.69%..

my take is that the results have been disappointing primarly due to clever accounting..as sales have increased and "cost of goods" is still well under control.. The main target could be reduction in taxes.. which is the reason for higher inventory reporting, higher interest payments and drop in profits..  Higher inventory could indicate higher sales in subsequent quarters.(positive spin)

PN: these are my personal intepretation of results based on publicly available information and could be wrong. Please do your own deep dive

Vertical Analysis.. everything is compared on a % of sales basis..

1. Cost of goods for June 2014 quarter is less than March 2014 or June 2013..
Also Year end cost of goods is lower.. so Jayant does have higher cost of goods during the 1st half and maybe lower cost of goods in 2nd half (higher profit margins in 2nd half??)

looking at year end Cost of Goods 2013(68.30%)  & 2014(73.76%)  Cost of goods is definitely trending up.. but the company has been able to maintain its profit margins
2013 (NP Margin: 2.19%)
2014 (NP Margin: 2.64%)

2. Purchase of stock in trade is the primary reason for increase in expenditure..

looking at the figures clearly nothing seems out of order in june 2014 results..  new segment reporting of interest income has been normalized in the income statement.. Taxes are lower.

If you read the notes section of the report.
- Depreciation is higher and depreciation for previous years has been directly reduced from the company reserves.. depreciation at consolidated level is higher by 17.64 lakhs for the quarter June 2014

- Inventory calculation method has been changed from "First in first out" to "weighted avg.." which has resulted in consolidated profits being lower by 1cr for the quarter june 2014

Conclusion: My take is June 2014 is just another quarter.. with not much changes .. lower profits higher inventory.. are part of reporting.. and donot see anything extra ordinary or out of place.. "Its Business as usual"
Link to June 2014 Results Company Website

Friday, July 25, 2014

Jayant Agro: Fudged..Return on Capital Employed(ROCE)??

I was looking at all the high PE stocks.. and one thing which struck me was the ROCE of Jayant agro is lower than other high PE stocks....

now looking at the 5 yrs (2009-2013) ROCE data for Jayant agro in money control I get.
Stand Alone Jayant Agro 5 yrs Avg. (2009-2013)ROCE = 17.44%

Consolidated Jayant Agro 5 yrs (2009-2013) Avg ROCE = 16.79%

ROCE =16-18% range is "ok" not too high, not to low maybe one reason for lower PE for Jayant Agro..

but then I decided to do ROCE calculation myself for Jayant Agro..
according to Investopedia:
ROCE = Earnings Before Interest and Tax (EBIT) / Capital Employed
where Capital Employed = (Total Assets - Current Liabilities)

I opened each year's Annual report (available here)

Using the Profit loss statement got the EBIT 
Using the Balance Sheet got the Capital Employed (Total Assets - Current Liabilities)

My calculations for ROCE Jayant Agro:
Stand Alone Jayant Agro 5 yrs Avg (2009-2013) ROCE = 26.26%
Consolidated Jayant Agro 5 yrs Avg (2009-2013) ROCE= 27.37%

5yrs Avg ROCE in Moneycontrol (stand alone)=17.44% 
5yrs Avg ROCE from Annual Report(stand alone)= 26.26% (calculated myself)
HUGE Difference!!

5yrs Avg ROCE in Moneycontrol (consolidated)=16.79%
5yrs Avg ROCE from Annual Report(consolidated) = 27.37% (calculated myself)
Again HUGE Difference!!

well then just to confirm my calculations ..I also calculated ROCE for a couple of different companies (1 year only) using Annual Reports from BSE Website
Checked Astral Poly Technik
Moneycontrol Data 2013 ROCE= 31.47%
Annual Report 2013 Data ROCE= 30.59% (calculated myself)
Checked Atul Limited
Moneycontrol Data standalone 2013 ROCE= 26.51%
Annual report 2013 calculated ROCE= 23.92% (calculated myself)
Checked GAEL data
Moneycontrol Data 2013 standalone ROCE= 19.97%
Annual report 2013 calculated ROCE= 23.44% (calculated myself)
as you can see the ROCE calculated(annual report) and from Moneycontrol website,difference is not that much for other companies..

Conclusion: ROCE and other stats though available from sites.. its best to do some quick chk calc.. to confirm data is correct.. Jayant Agro ROCE is close to 26-28% range instead of 16-18% published by moneycontrol.. another reason to make Jayant Agro an attractive investment destination..

Wednesday, July 23, 2014

Jayant Agro: the good guys in the US court case against now defunct Biotor Industries

there is some rumor going around in investment circles (read valuepickr) where it has been incorrectly stated that the Promoters of Jayant Agro had a court case against them in US court.. for poaching two employees who stole customer relationships and sold them to Jayant..
here it is from what was posted on valuepickr
Posted by Narayanan Ravindranathan at Tuesday 14:02
This company used to supply castor oil to a US based company which then sold it to end users. The US company filed a court case against Jayant for poaching two of its employees who essentially stole customer relationships and gave it to Jayant thus damaging the sales of the US based company. The US company won the case in court and Jayant coughed up some damages. But avoiding such things is one possible reason why foreign companies will want to have control of suppliers like Jayant.

well here's the read deal.. Actually Jayant Agro Organics Director (now Chairman)"Abhay Udeshi" actually helped the US company  Acme-Hardesty by informing the President of Acme-Hardesty Cindy Cox about the rogue employees .. Its best you read the article yourself.. 

As they say The Truth will set you free!!

June 25, 2008 
Castor Oil Creates Courtroom Drama 

By George Gill

Trade secrets. Clandestine meetings. Wired money transfers. Downloading confidential data. Those aren’t scenes from a spy thriller, but instead part of court document allegations in a Pennsylvania case involving a castor oil and derivatives distributor, two former employees, and an India-based exporter of castor oil and derivatives.

In February 2007, Jacob Stern and Sons Inc. – parent company of castor oil and derivatives distributor Acme-Hardesty in Blue Bell, Pa. – filed suit against two former employees and its former supplier Jayant Oils and Derivatives Ltd., Mumbai, India, alleging breach of contract, misappropriation of trade secrets, breach of duty of loyalty, interference with existing and prospective business advantage, unfair competition and civil conspiracy.

On May 21, 2008, a jury in Montgomery County, Pa., found in favor of Jacob Stern and Acme-Hardesty, awarding $7 million in damages -- $4.6 million against Jayant, and $1.2 million apiece against former Acme-Hardesty employees Adele Savaiano and Fred Hawco. Attorneys for each side disagree on whether Jayant can be held responsible for the entire $7 million award. After the jury trial concluded, the defense filed a post-trial motion to set aside or reduce the jury verdict amount.

Castor oil comes from castor beans’ fatty oil, which is extracted through pressing, then followed by solvent extraction. Castor oil and its derivatives are used as a raw material in chemicals used in the manufacturing of greases, lubricants and surfactants.

David Walton, an attorney with Cozen O’Connor, in West Conshohocken, Pa., was co-counsel for Jacob Stern and Sons. Walton said the case had serious impacts on Acme-Hardesty’s business.

“You have key employees leaving, secretly helping a competitor, and helping a supplier prepare to compete against you,” Walton told Lube Report. “They were having the rug pulled out from under them by the supplier, Jayant, which said they were going to stop supplying them and start competing against them. Then it turns out later that two of their key employees were hired by Jayant to start a competing company.”

Jayant was represented by Michael Banks, an attorney with Morgan, Lewis and Bockius in Philadelphia. “The defense contends that Jayant, together with Miss Saviano and Mr. Hawco, engaged in legitimate competition with Acme-Hardesty, and that they were entitled to do so,” Banks told Lube Report. “We don’t believe there was any factual basis for the verdict in favor of Acme-Hardesty.”

According to Banks, Jayant and JODL have gone ahead with their business plan. Early in the trial, the judge signed a special preliminary injunction that restricted the right of Jayant to sell to Acme-Hardesty’s customers. “Right after the trial was over, the judge dissolved that injunction, giving Jayant the right to compete fully in the United States, which it has been doing,” Banks said. “Jayant is encouraged by that, and intends to sell its castor oil products in the United States now.”

Banks said he filed the post-trial motion shortly after the jury decision, asking the judge to set aside or reduce the verdict amount. The case is now in a briefing process, according to Banks.

Ed Taylor of Sebris Busto James in Bellevue, Wash., is co-counsel representing Jacob Stern. Taylor said he doesn’t believe his clients could have done anything further to prevent what happened. He said Acme-Hardesty had confidentiality agreements in place, which the two former employees had signed, and a computer system with appropriate password protections and security.

“I think the reality is if people are bent on taking away information improperly and trying to use it, it happens at all kinds of different businesses and different industries,” Taylor told Lube Report. “I think the best way to prevent it is when courts do what this one did – send a message that it’s not OK.”

According to Taylor, Jacob Stern and Acme-Hardesty have recovered from the lost supplier relationship with Jayant. “For the products that Jayant sold to Stern, there are other providers of castor oils and castor oil derivatives,” he said. “I’m sure there was some disruption at the outset while having to go through with getting approvals and so forth for new suppliers, with certain customers who have exacting specifications. The approval process required some time to publish that, but I think that’s all well laid out now.”

Thomas Rees of HighSwartz LLP in Norristown, Pa., represented Savaiano and Hawco. “Our view is the damage awards were A) not supported by law, and B) excessive,” Rees told Lube Report. Rees said he filed a brief Monday as part of the post-trial motion, which he said will be argued on Aug. 13.

An amended, verified civil action complaint filed in July 2007 alleged that, “throughout the course of defendants’ employment, Jacob Stern, through Acme-Hardesty, made available to defendants confidential proprietary business information, including but not limited to, its customer and supplier lists, castor oil data shipping and distribution information, purchase data, pricing, sales data and other trade secret information and confidential information.”

According to the complaint, in December 2006, Jacob Stern CEO Jonathan Atkatz spoke by phone with Jayant President Rajesh Kapadia. During the conversation, Kapadia abruptly informed Atkatz that Jayant would create its own office and sales organization in the United States. “Kapadia denied at the time that any former employees of Acme-Hardesty were working with Jayant and denied that Jayant intended to hire any present or former Acme-Hardesty employees,” the court documents alleged.

In January 2007, while visiting suppliers in India, Atkatz and Acme-Hardesty President Cindy Cox met with Abhay Udeshi, a former Jayant employee who was director of Jayant Agro Organics Ltd., a separate and distinct business entity from Jayant. During the meeting, the complaint states, Udeshi informed Atkatz and Cox that Jayant intended to distribute castor oil products directly into the U.S. market and showed them press articles indicating the intent.

According to court documents, Udeshi further informed Atkatz and Cox that Savaiano and Hawco met extensively with Jayant’s president and other Jayant representatives in Mumbai in July 2006, that he observed Savaiano in Mumbai during that time, and that Savaiano and Hawco intended to represent Jayant’s business interests in the United States.

((Who is the good guy??? Jayant Agro Organics))
The complaint stated that upon returning to the U.S., Atkatz and Cox initiated an investigation of the activities of Savaiano and Hawco during and after their employment. In the course of the investigation, they learned that in May 2006, Savaiano and Hawco, while still employed by Acme-Hardesty, met with Jayant and several key castor derivative customers. According to court documents, the meeting wasn’t disclosed to Cox or Atkatz, as was required by Acme-Hardesty’s standard operating procedures.

The court documents indicated Savaiano and Hawco in or about March 2006 agreed to financial terms for their relationship with Jayant. At the time, Savaiano was purchasing products from Jayant on behalf of Acme-Hardesty, and Hawco was attempting to expand Acme-Hardesty’s market for castor oil derivatives.

“Savaiano and Hawco never disclosed to Acme-Hardesty that they were negotiating terms under which they would leave and work for Jayant, or that they had agreed to financial terms to work for Jayant,” Jacob Stern’s court filing claims. Savaiano and Hawco each received initial $50,000 payments via wire transfer from Jayant in early June 2006, pursuant to consulting agreements signed with Jayant, according to court documents, while each was still employed by Acme-Hardesty.

Acme-Hardesty retained a computer forensics expert to analyze data from the laptop computer used by Savaiano during her employment with Acme-Hardesty, and to review data maintained on the Acme-Hardesty computer server, specifically e-mails to and from Hawco and Savaiano. “The documents and information extracted from Savaino’s computer and the server not only confirmed, but provided additional detail regarding defendants’ secret meetings with Jayant and key customers of Acme-Hardesty,” court documents alleged.

According to Jayant’s Web site, India is the largest exporter of castor oil, while the European Union is its largest importer. The site also said China, which used to be a net exporter of Castor Oil, has now turned a net importer as it concentrated on manufacturing value added castor oil derivatives in its country rather than exporting the castor oil. According to Jayant, Brazil has now become a net importer due to increase in its domestic consumption.

Now a well respected site such as "valuepickr" has people spreading false rumors .. 

I must add the culprit is also named "Jayant Oil"  while the "Good Guys" are  "Jayant Agro Organics"
and there could be confusion in the mind of readers..  but if they have read the actual article .. I dont think there is any confusion.. as its clearly stated in the article 
Acme-Hardesty President Cindy Cox met with Abhay Udeshi, a former Jayant employee who was director of Jayant Agro Organics Ltd., a separate and distinct business entity from Jayant.

but such a statement with no link to original article clearly indicates something is fishy!! with what was written in Valuepickr!! 

The most important thing that one learns in life is to not take things at face value.. always get to the bottom of things and always dig a few feet deeper.. to get to the truth.. and THE TRUTH WILL SET YOU FREE!!

=happy investing in Jayant Agro Organics.. Promoters are a hardworking bunch and a close knit family .. which is always a good thing!!

Tuesday, July 22, 2014

Jayant Agro Organics: 676 shareholders hold 92.91% shares

The more you discover Jayant Agro the more intriguing it get.

I was looking at the shareholder data given in 2013 Annual report

if we look at the no of shareholders and % shareholding..
104 people hold 82.43% stake.. so it is a close knit of investors..

if you consider all investors holding 1001 share or more.. 676 shareholders hold 92.91% stake in Jayant Agro which indicates how concentrated is the shareholding for jayant agro..

NO significant holdings of FII, DII or any institutional investors..

Now Jayant Agro Organics is the largest processor of castor oil and castor oil derivatives in India. with India producing 80-85% of worlds castor oil production.. Jayant is the largest player in the world in castor oil and castor oil derivatives business..

a 1001 share purchased in Jayant gets you in the top 676 investors who control 92.91% stake in Jayant
10,001 shares purchased in Jayant agro gets you in the elite group of 104 investors who hold 82.43% stake in Jayant.
Jayant Agro Organics
CMP: 128
MCap: 190cr
ROCE: 19.45%, ROE: 22.61%
3yrs CAGR Sales: 21.49%
3 yrs CAGR inNet Profits: 43.88%
PE: 4.83 (March 2014)
EV to Sales: 0.30
EV to EBIDTA: 4.96
7 yrs 588% increase in profits and 335% increase in sales
Consolidated Sales/NP/dividend numbers.
March 2007 Sales 462.49Cr Net Profit: 6.76Cr Div:1.25
March 2008 Sales 605.96Cr Net Profit: 9.51Cr Div:1.25
March 2009 Sales 875.86Cr Net Profit 7.49Cr Div: 1.25
March 2010 Sales 904.01Cr Net Profit: 12.47Cr Div:1.50
March 2011 Sales 1,175.26Cr Net Profit: 24.92Cr Div 1.75
March 2012 Sales 1,832.26Cr Net Profit: 31.35Cr Div: 2.00
March 2013 Sales 1,624Cr Net Profit: 36.24Cr Div: 2.25
March 2014 Sales 1,550Cr NProfit: 39.75cr Div: 3/=

Jayant agro stock price has in past 7yrs(April 1,2007)  has increased 119% while earnings have increased 588% ..
5yrs  compounded annual growth rate in profits is: 32.51% and
5 yrs compounded annual growth rate in sales is: 21.46%
5 yrs Return on Equity is: 19.99%

Conclusion: Jayant stock is undervalued by a mile.. such high growth rate companies should command PE of 
(Growth + 8) = 21.46+8 =  PE of 29.46. worlds largest processor of castor in country that produces 80% of castor with great return on capital employed..consistent dividend payout since inception for more than 20+ yrs...Only 676 shareholders hold 92.91% shares.. long term investors can expect PE and sales growth to deliver long term (3yrs) price target of atleast 1000/=  per share... ie Mcap of: 1500cr. Must buy!!

Friday, July 18, 2014

Jayant Agro Organics: Auditors of Jayant Agro hold more than 1% in Jayant Agro.

Auditors who audit the books like what they see in case of Jayant Agro Organics. Best way to show your confidence is holding more than 1% stake in Jayant Agro by the auditors..

June 2014 Public holding more than 1% stake in Jayant agro:
1. Balwan Finance & Leasing Pvt Limited - 1,93,583 shares - 1.29% of paid up equity capital
2. ITOH OIL Chemicals Co. Ltd - 6,00,000 shares - 4% of paid up equity capital.
3. SShyam - 1,50,441 shares - 1% of paid up equity capital.

Now if we look for promoters of Balwan Finance & Leasing Pvt ltd. we get the following info..
Director Name: Sushila Tilokchand Ostwal
Director Name: Twinkle T Ostwal

Now if we look at the annual report March 2013.
Auditors are:
T.P Ostwal & Associates (Regd.)
Chartered Accountants.

Now T.P.Ostwal & Associates Senior partner is Tilokchand P Ostwal..

So there we have it .. one of the largest public shareholders of Jayant Agro is the Auditors of Jayant Agro itself.. Clearly the CA can see something other's cannot ..

One more Feather in the Cap of Jayant Agro Organics..

Conclusion: The Auditors who's job is to audit that the books are in order seems to be impressed by Jayant Agro Organics Financial.. so impressed are the auditors that he is willing to buy 1,93,583 shares (1.29% shareholding in Jayant Agro worth 2.43cr @126 not directly but through family holdings).

Wednesday, July 09, 2014

Jayant Agro: Postal Ballot for 700cr debt or stake/asset sale

Jayant Agro held a Board Meeting on July 5,2014. The board of directors took the following decision..

1. To conduct Postal Ballot, pursuant to Section 110 of the Companies Act, 2013 to obtain approval of shareholders, by passing a Special Resolution for:

    a) Borrowing of money up to Rs. 700 Crore under Section 180 (1) (c) of the Companies Act, 2013 where the money to be borrowed together with the money already borrowed by the company will exceed aggregate of its paid-up share capital and free reserves, apart from temporary loans obtained from the Company’s bankers;
    b) Creating mortgages, charges, hypothecation etc. on the Company’s assets, undertaking properties, under Section 180 (1) (a) to secure the borrowings of the Company.
    c) Giving of loan to anybody corporate or providing guarantee or security to any body corporate or acquiring by way of subscription, purchase of otherwise securities of any body corporate in excess of the limits specified under Section 186 (3) of the Companies Act, 2013 up to Rs. 700 Crore.

2. Appointment of M/s. V. V. Chakradeo & Co., Practicing Company Secretaries, as scrutinizer for conducting the Postal Ballot voting process, pursuant to Section 110 of the Companies Act, 2013 and rule 22 of the Companies (Management and Administration) Rules, 2014.

looking at the Board Meeting details it looks like Jayant Agro is going to borrow upto 700cr and the Postal Ballot Special resolution is for these 700cr.. and other related activities..

but then digging a bit deeper and looking at the Companies Act, 2013 shows something different..

Consider point b of the Postal Ballot..
b) Creating mortgages, charges, hypothecation etc. on the company assets, undertaking properties, under section 180(1)(a) to secure the borrowings of the Company

If you read Section 180(1)(a) of the Company Act 2013 it states..
180. (1) The Board of Directors of a company shall exercise the following powers only with the consent of the company by a special resolution, namely:—
(a) to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the company owns more than one undertaking,of the whole or substantially the whole of any of such undertakings. Explanation.—For the purposes of this clause,—
(i) “undertaking” shall mean an undertaking in which the investment of the company exceeds twenty per cent. of its net worth as per the audited balance sheet of the preceding financial year or an undertaking which generates twenty per cent. of the total income of the company during the previous financial year;
(ii) the expression “substantially the whole of the undertaking” in any financial year shall mean twenty percent. or more of the value of the undertaking as per the audited balance sheet of the preceding financial year;
You can compare the Postal Ballot statement for Section 180(1)(a) in blue  and one can read the company Act 2013 Section 180(1)(a) in red

Clearly Section 180(1)(a) talks about special resolution for sale of substantial assets (exceeds 20% of company networth or generates 20% of its income)

For the year ending March 2013:
Jayant Agro Standalone total Income: 1215Cr
Consolidated Total Income: 1640Cr
Thus Ihsedu Agro chem Total Income: 425Cr
20% of 1215 = 243Cr
20% of 1640 = 328Cr
So in both terms Ihsedu Agro Chem's Income exceed 20% of Jayant Agro's Income
For the year ending March 2013
Jayant Agro Stand alone Networth: 143.16Cr
Jayant Agro Consolidated Networth: 173.65Cr
thus Ihsedu Agro Chem's Networth: 30.49Cr

20% of Jayant Agro Standalone Networth= 28.63Cr
20% of Jayant Agro Consolidated Networth= 34.73Cr
Ihsedu Agro Chem networth exceeds standalone networth of Jayant Agro..
- Ihsedu Agro Chem is a substantial subsidiary with Income more than 20% of total Income for last year ie. 2013.
- Ihsedu Agro Chem is a substantail subsidiary with networth more than 20% of standalone networth of Jayant Agro.
- Ihsedu Agro Chem networth is less than 20% of consolidated Networth of Jayant Agro.
Conclusion: looks like the postal ballot is after all not for raising loans upto 700Cr(upto.. means loan from 1cr to 700Cr  ).. its more so to get approval to sell a substantial asset... most likely its Ihsedu Agro Chem where Arkema would prefer to hold majority stake.. ( to protect its number one position in castor derivative business worldwide)
700cr could be a hypothetical number .. it could also be the price Arkema pays for majority stake in Ihsedu Agro chem.

Another point worth considering is that promoters might sell stake in Jayant agro itself for 700Cr by selling stake in Jayant Finvest which holds more than 50% in Jayant agro.. but then.. do they need a special resolution to sell stake in a company that is pvt?.. Naw.. so most likely its substantial stake sale by Jayant in Ihsedu agro chem.. and its going to be substantial.. amount somewhere around 700Cr 

So here it is much before the real announcement is made .. information is available that stake sale will happen giving us a chance to enter in before the stock starts appreciating..Jayant Agro: CMP: 121, MCap: 181.50cr
Multibagger if it all turns out to be true.. still its cheap even at cmp for jayant agro as a company.. so heads I win tails I donot loose much!!

=Happy Investing

PN: There is no guarantee ..this is my interpretation based on publicly available information.. Pls do your own deep dive before investing.

Jayant Agro Postal Ballot

Company act 2013 Section 180(1)(a)

Tuesday, July 08, 2014

Unresolved Global Oil Supply and Demand Equation Poses Risks

Article in Business Standard..

There is an urgent need to move to alternatives to crude oil.. and Castor oil derivatives which can produce 1000+ intermediates which are derived from Crude Oil is one of the given solutions..

Also castor oil derivative can replac crude oil derivatives "one to one" in the current production process with no changes to the production process.. which makes it a low hanging alternative to crude oil derivatives in the chemical industry..

Jayant Agro Organics by the virtue of being the largest player in castor oil and castor oil derivatives space is in a positon of strength to reap benefits from the same..
Unsolved global oil supply and demand equation poses risks: Dr Mosongo Moukwa
Looking out a few years, global demand for oil will continue to increase because of rising prosperity in emerging economies. Supply, however, will still remain constrained
Soon, the world will not be able to produce all the oil it needs as demand is continually rising while supply is falling. According to International Energy Agency (IEA), oil consumption will rise by 56% between now and 2040, with China and India, both responsible for half of this increase in consumption.

A study by Pickering, Holt &Co, an investment bankfocusing on energy, estimates that more than 50 billion barrels of oil and gas have been consumed in 2013 against only 20 billion barrels of conventional oil discovered. The study has examined 400 exploration wells and has concluded that companies have found less oil than anticipated, despite heavy investments in capital and technology. Deep-sea exploration, where morehydrocarbons are being discovered at about 1500 meters, is becoming ever more important.

None of the discoveries made in 2013 exceeded one billion barrels of oil equivalent. The largest one was made by the Italian ENI off the coast of Mozambique, with two deposits of 700 million barrels, followed by the Lontra (Angola) by the American Cobalt (900 million) and that of a field in Malaysia by Newfield Exploration (850 million). Others have been unsuccessful, such as in Ethiopia and Cote d’Ivoire by British Tullow Oil. Oil explorations by Shell and Total off the coast of French Guyana has produced very little.

According to the French Institute of Petroleum (IFPEN), reserves discoveries between 2008 and 2012, including deposits in hard places to operate, cover only 40% of global consumption of conventional oil. This is far from offsetting the decline of mature fields. According to the IEA, who studied the profile of 1600 fields having passed their peak production, production has fallen to an average rate of 6% per annum.

Richard Miller, a former BP geologist, and Steve R Sorrels, a co director of the Sussex Energy Group at the University of Sussex (UK), have stated that squeezing more oil out of older reserves and exploring new ones in the deep seas will not be sufficient to meet the production levels required to address the demand. They have estimated that we would need to bring on stream new productions equivalent to a minimum of 3 million barrels per day to compensate for declining crude oil production. This is equivalent to a New Saudi Arabia every 3 to 4 years in order to meet the demand. The oil peak is the result of declining production rates, not declining reserves.

Professor David J Murphy of Northern Illinois University, an expert in the role of energy in economic growth, has stated that the Energy Return on Investment (EROI) for global oil and gas production is about 15 and declining. EROI is the amount of energy produced compared to the amount of energy invested to get and use it. EROI of oil and gas production is 11 for the US and is also declining. It is generally less than 10 for unconventional oil and biofuels. As the EROI decreases, energy prices increase. The dependence on shale could worsen the decline rates in the long run, since these wells decline extremely fast.

The current rise in oil production in North America, one million barrel a day, has helped offset any outages coming from other oil producer countries and has helped the market remain in balance. Looking out a few years, global demand for oil will continue to increase because of rising prosperity in emerging economies. Supply, however, will still remain constrained.
Dr Mosongo Moukwa
Last year, IEA predicted that over the 2012-18 period, the largest contributors of new supplies to world markets, after the US and Canada, would be Iraq and Brazil. Iraq is expected to contribute to 45% of global oil growth between now and the end of the decade.  Technical challenges seem insurmountable in Brazil, and Iraq has exploded to chaos again, implying that geopolitical factors are the wild cards in the oil equation and they can outdistance the “market only” factors.
The price of oil has continuously risen since 2004, where it was at $30. Then, it spiked to $150 to come down to a floor of $100 per barrel in 2008. Today the oil price is at about $110 per barrel and the markets have been relatively calm, as investors have assumed that Baghdad will not fall. But, the risk is to the upside. While the price of oil has been high, exploration costs have also taken the same trajectory. According to Goldman Sachs, oil companies would need the price of oil to be at $120 per barrel in order for them to balance their own budgets.
The relationship between economic growth and energy consumption is straightforward: the former is a function of the latter. With national economies around the world forced to pay more than $120 for every barrel of oil consumed, a critical question must be asked: what happens when the world’s most important source of energy becomes unaffordable? 
The author is an Independent Consultant based in Chapel Hill, NC, USA, and was recently Vice President - Technology at Asian Paints Ltd, Mumbai, India. He is a member of the American Chemical Society and Product Development Management Association. Email: mosongo@mosongomoukwa.com

Conclusion: The world built around oil (hydro carbons) as the source of  energy is unraveling, Castor oil derivatives which can replace crude oil based derivatives without any changes in the process of production is a low hanging fruit.. with the added benefits that its "renewable" and "green" 

Thursday, July 03, 2014

Jayant Agro Organics: Why I love this 2% Net Profit Margin Business

As you are well aware Jayant Agro is one of my "Best Buy's" along with GAEL, Tata comm and NHPC.

While duscussing the pro's and cons of Jayant Agro Organics as a stock worth investing, everybody's concern is: "its a 2% Net Profit margin business.." One wrong step all your profits are "Zero" Its a high risk investment.
Well lets look at a hypothetical business with 2% profit margin and say your investment is Rs100/= and you make 2% profit on it. that's Sales: 100/= Net Profit 2/= 
Net Profit Margin: Profit/Sales = 2/100 = 2%
Return On Capital Employed: Profit/Capital employed = 2/100 = 2%

well now consider one small change suppose 100/= is the sales done in 1 month then..
Annual (12 months sales)= 12 x 100 = 1200/= 
Annual (12 months profit) = 12 x 2 = 24/=
Now the key is to understand how much capital is employed, 
here the 100/= bucks capital is free after the first month to be used again in next 11 months so actual capital employed is only  100/= , lets calculate Net Profit margin and Return on capital employed

Net Profit margin = Profit / Sales = 24/1200 = 2%
Return on Capital Employed = Profit/Capital employed = 24/100 = 24%

So the 2% profit margin business, since it can sell its inventory & reinvest the capital again 12 times a year, capital employed actually gets a return of 24%
Lets look at Jayant Agro's Net Profit Margin and Return on Capital employed (ROCE)
Consolidated 5 yrs avg data:
Net Profit Margin: 1.656%
ROCE = 16.798%

So as can be seen Jayant Agro has a wafer thin margin of 1.65% (5 yrs avg)  but ROCE is healthy 16.79% (5 yrs avg). The question is.. is Jayant just like the Business which has a 2% profit margin but turnover is every month? How do we know that..

Look a little lower at Inventory turnover ratio.
5 yrs Avg Inventory turnover ratio: 13.022
Lets calculate inventory holding period in days = no of days in a year/Inventory turnover ratio 
= 365/13.022 = 28.02 days..

So Inventory Turnover Ratio indicates that Inventory holding period for Jayant Agro is 28Days (5 yrs avg) so within 1 month Jayant is able to sell all its inventory and (make 1.65% profit) and restock again this happens every year 13 times (inventory turnover ratio) this helps the company get a respectable ROCE even when the profit margins are just 1.65%
Similarly is you look at the Debt turnover ratio:
5 yrs avg Debt turnover ratio: 20.126

Debt turnover in days = no of days in a financial year/Debt turnover ratio = 365/20.126 = 18.13 days

WOW!! so Jayant has a 5 yrs avg debt turnover rate of 18.13 days.. clearly matches with the Inventory turnover ratio.. of 28.02 days..
So we can conclude looking at 5yrs data avg for jayant agro consolidated..
1.65% Net Profit Margin and ROCE = 16.79% and Inventory turnover ratio of: 13.022 (28 days) and Debt turnover ratio of 20.126 (18 days) we have a company which has a very efficient supply chain.. and it can turnover its inventory and its debt very very quickly(less than 1 month).. at wafer thin margins( keeping competitors at bay as well as ensuring its customers get competetive prices..) .. getting a respectable ROCE of 16.79%
Getting back to the rs100/= example.. say we have an option of an FD of 15% Per annum return or another FD of 2% per month return..Assuming equal risk levels which one will you choose? its very simple we know the 2% per month translates to 24% per annum and it wins hands down!!

Comparing 15% Per Annum and 2% per month is not correct way we need to look at per annum return
15% per annum and 24% per annum (2% per month * 12 months)

Clearly we can see that 24% return is better than 15% per annum.. Similarly looking at just profit margin gives us the wrong picture.. we need to look at ROCE.
Again.. its all great that Jayant is competetive and its able to turn over its inventory and debt at an amazing pace of less than 30 days .. I still need another confirmation.. to be convinced that Jayant is not a High Risk business..

According to the management : Jayant has been paying dividends since inception ie 20+ yrs of uninterrupted dividends since inception and uninterrupted profits..
From Annual report 2004-2005

From Annual report 2012-13

 Clearly the company has built a moat around itself based on its efficiency and its providing attractive return on investment (ROCE=16.79% 5yrs avg)  as well as competetive prices to its customers (Net Profit Margin: 1.65% 5 yrs avg)..

Another interesting point: Net profit since inception: 201.22cr
dividend payout since inception: 48.08cr
Avg dividend payout ratio (20+yrs): 48.8/201.22 =  24.25%

latest dividend payout (2013-2014): 5.17cr (Rs 3/= per share + dividend tax 15%)
Latest Net Profit (2013-2014): 39.75cr
Latest dividend payout ratio: 13.01%

Clearly if dividend payout reaches its 20+yrs avg payout ratio(24.25%) we should receive:  9.63cr (including div tax) which translates to 5.58/= per share (high probability of increase in dividend payout)

Conclusion: Dont go by the ultra low profit margins and debt in its books.. (most of it is short term) as we have seen Debt turnover is 18 days (5 yrs avg) Inventory turnover is 28 days(5 yrs avg) we have in Jayant agro a well oiled company running flawlessly (great supply chain) keeping competitors at bay. 

This is attracting speciality chemical majors (Arkema, Mitsui Chemicals, ITOH oil) to build strategic partnerships as Joint Ventures further cementing its position by locking in big customers (Arkema is the largest importer of castor oil and castor oil derivatives in the world!! 7 billion Euro sales &  Mitsui Chemical is one of the top Chemical companies in the world , 14 billion dollar sales, ITOH oil is a 100yrs old company in castor oil based speciality chemicals business).

Jayant Agro
CMP: 128
MCap: 190cr
ROCE: 19.45%, ROE: 22.61%
3yrs CAGR Sales: 21.49%
3 yrs CAGR inNet Profits: 43.88%
PE: 4.83 (March 2014)
EV to Sales: 0.30
EV to EBIDTA: 4.96
7 yrs 588% increase in profits and 335% increase in sales
Consolidated Sales/NP/dividend numbers.
March 2007 Sales 462.49Cr Net Profit: 6.76Cr Div:1.25
March 2008 Sales 605.96Cr Net Profit: 9.51Cr Div:1.25
March 2009 Sales 875.86Cr Net Profit 7.49Cr Div: 1.25
March 2010 Sales 904.01Cr Net Profit: 12.47Cr Div:1.50
March 2011 Sales 1,175.26Cr Net Profit: 24.92Cr Div 1.75
March 2012 Sales 1,832.26Cr Net Profit: 31.35Cr Div: 2.00
March 2013 Sales 1,624Cr Net Profit: 36.24Cr Div: 2.25
March 2014 Sales 1,550Cr NProfit: 39.75cr Div: 3/=

Sunday, May 04, 2014

Jayant Agro:Self Employed Women Association (SEWA) and castor supply chain

Interesting report done as part of M.Sc degree by student of DA-IICT (Dhirubhai Ambani Institute of Information and Communication Technology) Its a report of how SEWA is working as part of castor seed procurement supply chain with Jayant Agro Organics.

SEWA  is  a  trade  union  registered  in  1972.  It  is  an  organization  of  poor,  self-employed women workers. These are women who earn a living through their own labor or  small  businesses.  They  do not obtain  regular salaried  employment  with welfare  benefits  like  workers  in  the  organized  sector.  They  are  the  unprotected labor force of our country. Constituting 93% of the labor force, these are workers of the unorganized sector. Of the female labor force in India, more than 94% are in the  unorganized  sector.  However  their  work  is  not  counted  and  hence  remains invisible. In fact, women workers themselves remain uncounted, undercounted and invisible.  SEWA’s  main  goals  are  to  organize  women  workers  for  full employment. Full employment means employment whereby workers obtain work security,  income  security,  food  security  and  social  security  (at  least  health  care, child  care  and  shelter).  SEWA  organizes  women  to  ensure  that  every  family obtains  full  employment.  By self reliance  we  mean  that  women  should  be autonomous and self-reliant, individually and collectively, both economically and  in terms of their decision-making ability. 
In rural India, agriculture and allied industrial sectors employ as much as 89.5% of the total female labor. In overall farm production, women's average contribution is estimated at 55% to 66% of the total labor.  

Brief description of RUDI               
RUDI  was  initiated  by  Self  Employed  Women’s  Association  (SEWA)  in  2004.RUDI  Multi  Trading  Company  Limited  has  been  established  in  2007  with  an objective  to  internally  generate  funds  for  the  rural  producer  groups.  This  will enhance the quality, capacity and efficiency of production through the use of better technology. Eventually it will result in scaling up the profit margins by way of bulk procurement and a well organized sales and distribution network. The profits will be shared by the members of the rural Self-Help Groups and Farmer’s Association, which  will  bring  a  positive  change  in  the  economic  condition  of  the  marginal farmers and workers who are struggling to survive and are below the poverty line.  
The  company  would  enable  direct  promotion  and  marketing  of  the  agro commodities procured through Farmer’s Association in the rural retail network of farmers and agriculture  laborers across all the villages of 14 districts of Gujarat. RUDI Company also enables multiple employment opportunities, reduce incidental expenses, availability of good quality agricultural & non-agricultural products to the  rural  consumers  at  affordable  prices  and  required  quantity,  elimination  of middlemen,  better  earning  for  the  producers  and  thereby  socio  economic development of the underprivileged rural people.     
About castor crop: 
Castor is a plant that is commercially very important to the world. Castor seed oil cake  is  very  useful  manure  to  crops.  It  is  a  very  good  fertilizer  alternative containing  optimum  levels  of  Nitrogen,  Phosphorous  and  Potassium  which  is suitable for cultivation of Paddy, Wheat, Maize and Sugarcane. Castor Oil’s application range is very wide‐the uses range from cosmetics, paints, synthetic resins & varnishes, to the areas of national security involving engineering plastics,  jet  engine  lubricants  and  polymers  for  electronics  and telecommunications. 
Gujarat  is  the  leading  state  in  castor  seeds  production  in  India  followed  by Rajasthan and Andhra Pradesh. Gujarat contributed 71% of the total production of castor seed in India in 2007‐08, followed by Rajasthan at 16%, Andhra Pradesh at 9% and other states sharing 4% Mehsana and Banaskantha is the largest castor producing districts in Gujarat. In Gujarat castor cultivation comes from 6 districts of North Gujarat, viz., Mehsana, Banaskantha, Sabarkantha, surendranagar, Patan and Kutch.  
Role of SEWA:  
SEWA has its own district office in nine district of Gujarat. Surendranagar district association  has  232  groups  of  farmers.  Each  farmer  group  has  usually  10-20 members. Majority of the members are women. The main work of these groups is to provide small  farmers,  a  village level  platform  from  where  they  can  sell  their products. It helps small farmer to get appropriate money for their products because 
it save their transportation cost to the market and bargaining rates of market. In this way the rural women and small farmers works and get mutually benefitted as farmer association share profit with the company where SEWA has a tie-up and farmers get money at their home. 

Castor Production in Dhrangadhra block: 
There are 8000-9000 members of Sewa district association from different village of Dhargadhra.   They visit all villages of different blocks  and ask farmer to sell their castor to them. They buy castor or at the appropriate rates and then procure it. Once the  procurement process  gets  finished  then by  the help  of local  labor they make  it  clean,  package  it  and  make  the  castor  load  on  the  company  truck.  The procurement  is  determined  by  SEWA  headquarter  at  Ahmadabad.  They  keeps inform everyday to their district associations about daily castor rates. When  member  of  farmers  group  go  for  procurement  they  already  know  about today’s  rate  of  castor  as  they  have  been  already  informed  by  Company  main headquarter  at  Ahmadabad  ,  so  before  purchasing  they  keep  two  things  in  their mind,  first  that  today’s  rate  of  castor  and  second  quality  of  castor.  The  price  is usually fixed but can be negotiable at good quality of castor product. 
They purchase castor according to the quality because the company to whom they sell it have certain criteria for quality standard determination. If one bag of castor doesn’t have weight of 75.2 kg of weight they don’t give same rate that was fixed earlier. So it becomes members of farmer group responsibility to purchase castor of good quality and package it well.  

Jayant Agro-organic ltd. (The Company) 
Jayant Agro-Organics Limited is an emerging global oleo chemical company with leadership in the castor-based specialty chemicals industry. With proven research capabilities,  strict  adherence  to  stringent  quality  controls  conforming  to International Standards and flawless record of honoring delivery schedules it is no wonder  that  Jayant  Agro-Organics  Ltd.  is  the  preferred  partner  of  choice worldwide for sourcing of castor oil and castor oil derivatives. With the long-term approach  we  have  adopted  to the  industry  it  is  no  wonder that  we balance  your requirement equations not only chemically but also economically. 
This company has a tie-up with SEWA. They  purchase castor in a bulk amount from farmers group. They give 2% of total sell, means if farmer group sell castor of  cost  1lakhs  in  a  day  then  they  will  get  2000  Rs.    In  Surendranagr  district association, they sell 20 ton/day means, they sell castor of worth 650,000 Rs, and if price rate of castor is 650/20kg means they will get 13,000 Rs.  The 1.25% of this amount goes to SEWA’S district association and remaining 0.75% goes to SEWA main headquarter in Ahmadabad. 

PN: I have deleted a portion of the document to make it more readable.. but the document itself is worth reading .. It also provides us an idea about how well entrenched Jayant is with its non standard supply chain involving NGO and farmers directly.. and giving them a market determined price.

This information could be detrimental for Jayant agro as competitors could also enter into similar agreements ..but my personal view is a company is more than just one part .. its how the whole organization works together as a team that makes a difference..  Jayant at CMP: 105/= is a great stock to buy.. deep value and a multibagger on long term basis..

Quarter ending March 2014 according to my estimates, Jayant Agro Organics is scheduled to report anywhere between 450-550Cr of sales (consolidated) 

Sunday, March 16, 2014

Ukraine:Crisis .. The Russian View Point.. Make's more sense than what is being FED to everyone

As always truth is the last thing to be disclosed.. reading through Putin's talk to reporters.. looks like we are being fed a "cooked up" story..  just read it and maybe you will get the view from Russia.. 

Strange that this information is not being provided by Indian media or the likes of CNN,BBC, Aljazeera 

Must read for all.. Here's the link (Vladimir Putin's talk to Reporters about Ukraine)


Thursday, February 27, 2014

Jayant Agro: Castor Oil: Indian Institute of Chemical Technology: Hyderabad

This is a presentation given in Solvent Extractors Association: Castor Oil Global Conference in 2011
by Indian Institute of Chemical Technology: Hyderabad with regards to Castor Oil.

I have put all the slides.. just to keep the flow of the presentation..
What I find interesting is:
- Castor oil  Bio-refinery
- Various new technologies available with IICT-hyderabad.
- Castor oil is a source for the preparation of thousands of derivatives to replace petroleum intermediates.

I remember Jayant management talking about using enzymes as catalyst for getting castor oil derivatives as the next step forward for Jayant Agro.