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Monday, December 04, 2017

Tilaknagar Industries: Picture Tau Abhi Baaki Hai!!


Tilaknagar Industries:
CMP:21.55
Market Cap: 268.85Cr
March 2017
Consolidated Sales: 490Cr 
Net Profit: -ve 276Cr(loss)

Tilaknagar is up about 100% from its 52 week low 10.2

Tilaknagar Industries Ltd. (TI) is a leading player in the liquor industry and manufactures Indian Made Foreign Liquor (IMFL). Established in 1933 as Maharashtra Sugar Mills Ltd. (MSM), the company transitioned to the liquor business in 1987. Over its 75 year existence, TI has grown to be an organisation committed to quality, excellence and integrity.

TI which is the erstwhile "The Maharashtra Sugar Mills Limited" (MSM) was promoted in 1933 by the illustrious industrialist and visionary Shri Mahadev L Dahanukar popularly known as Babasaheb Dahanukar. The company was then engaged in the manufacture of sugar and allied products.

Babasaheb’s efforts were guided by noted freedom fighter Lokmanya Balgangadhar Tilak, and he named the factory complex 'Tilaknagar' as a token of respect for Lokmanya Tilak. The company had an unfailing record of paying dividend for more than 50 years. In deference to the policy of the Government to have all sugar businesses in the country under the control and management of Co-operative Societies formed by farmers, the Company had to stop its sugar business in 1987.

Tilaknagar Distilleries & Industries Ltd. was promoted as a 100 per cent subsidiary of The Maharashtra Sugar Mills Ltd. The year 1973 saw TI diversify into the businesses of Industrial Alcohol, Indian Made Foreign Liquor (IMFL) and Sugar Cubes. Both Maharashtra Sugar Mills Ltd. and Tilaknagar Distilleries & Industries Ltd have been merged to form Tilaknagar Industries Ltd. with effect from August 6, 1993.

Since then TI has been engaged in the business of manufacture and distribution of spirit and Indian Made Foreign Liquor (IMFL). There has been no change in the promoter of the company. The ‘Dahanukar family’ continues to be the promoter of TI(Tilaknagar Industries), sharing the same vision and values of the founders.

Due to its core competency in alcoholic beverages and conscious efforts, TI swiftly established its distinct identity in the liquor industry. Today TI’s brand portfolio consists of unique and diverse brands that enjoy excellent consumer preference solely due to their quality and value for money.



Looking at the long term charts we can see that TI is quoting close to lifetime Lows..
999EMA (5 yrs exponential moving avg) is: 24.89
On 27th Nov 2017 TI days high was 25(above its 5 yrs EMA) stock closed @ 23.95
looking at the chart the stock seemed to have bottomed out...

Looking at the consolidated balance sheet: we can see the reason for dismal share price..


We can see that:
- Reserves are negative. the book value is -ve... company seems to have run out of reserves as it has been reporting losses for past few years..(visible in income statement)
- Long term debt 190cr (2017) is lowest in past 5 yrs.. looks to be a good development but short term debt 633cr (2017) is at highest in past 5 yrs. As we will see the company is having problem raising finances.. and seems to be using short term loans to meet its funding requirements.
- Capital work in progress of 124Cr ( for past few yrs) for a company with 509Cr of Tangible assets is way too high.. something is not right with this number.. either the capital work in progress is actually on hold.. or something else.. 
- Bonus in Equity share is 108Cr while equity is 124.75Cr so 86% of equity capital is bonus.. so the company seems to have given liberal bonus to shareholders and it indicates a shareholder friendly management.



Income statement is also not a pretty picture.
- sales have increased to 490cr (2017) from 461cr a growth of 6%..
- cost of Material/Total revenue = 62% (2017) Vs 44% (2015)
clearly a price increase is required..

- Finance cost has increased to 156.4cr(2017) from 125cr(2016)
Important to understand that interest cost is different from finance cost.
Finance cost = interest cost + other finance related expenses.. dont know if repayment of loans is also included in financial cost?.. having said that in AR-2017(Annual Report March 2017) the debt has increased..

Total debt 31 March 2016: 945.125cr , 828.45cr (secured debt including interest due) & 116.66cr unsecured debt (including interest due)
Total debt End of 31 March 2017: 1077.348cr, 970.73cr is secured debt(including interest due)  + 106.61cr (unsecured debt including interest due)

so there is an increase in debt by 132.23cr.., unsecured debt is down by 10cr..

Sept 2017 Quarterly  results(not yet out) include half yearly data and balance sheet data.. so we will get some idea about how things have progressed.. in past six months.. Personally I feel we will not see a reduction in debt.. as company still needs additional cash for working capital.. we might however see an increase in topline sales..

Till now there is nothing to say that tilaknagar is still tumbling down the rabbit hole or its digging its way out .. well I was looking at the financial ratio data..


ROA(Return on Assets), ROE(Return on Equity), ROCE(Return on Capital Employed) all are deep in negative territory.. and that's not a good sign..

There is however one Financial Ratio: Cash Conversion cycle... which has turned -ve (and that's good) -ve 41.18

Cash conversion cycle is nothing but : Net Current Assets. A -ve net current asset means the company is generating a float from its operations. Current Assets -Current Liabilities.
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The Company in its every day operations buys raw material(inputs) and Sells its product(output)

The raw material seller (input provider)gives a  say 60 day payment period. (current Liability)and
The Product Buyer (Output buyer) also asks for a 60 day payment period..(current Asset)

Now if we say Ask the Input provider for 70 Days payment period.. And(increasing Current Liability)
we ask the Product buyer also to pay by 45 days ..that means effectively (decreasing Current Assets)

70-45 = 25 days... I as the producer will get 25 days float!!. interest free... effectively the 70 day payment period provided by the supplier is enough for me to sell the product and get the payment back.. and infact I can earn 25 Days of Float!!..
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Looking at the cash conversion cycle.. it looks like Tilaknagar is generating a 41 day float..
total sales is 490Cr assuming 200 days in a year (stock market is open for 200 days in a year)
that's like 2.45Cr of sales in a day.. float of 41 days means = 41x2.45 = 100.45Cr of float (1 day)

Now you might say all this is wishful thinking .. well lets look at a Super Blue Chip Like Hindustan Unilever Ltd and look at its cash conversion cycle..


Holy Cow!!!..
Cash Conversion Cycle: -ve for past 10 yrs..
10 yrs Avg Cash Conversion Cycle for HUL: -ve 30.94!!
and look at the ROCE, ROE,ROA.. Off the Charts!! HUL is like google.. generates only free cash !!!

Also March 2017 Annual report indicates some big name investor (Chug family) invested in Tilaknagar Industry stock..


Conclusion:  Tilaknagar is still swimming with the sharks.. but if you see carefully the management is improvising.. changing strategy .. looking to turn around the ship .. towards safer waters.. Its still not shipshape .. but within a few years I bet we will not be able to recognize Tilaknagar. Company was formed in 1933 and has faced tough challenges before.. Mansion House is a well established Leading Brand of Brandy.(2nd largest selling brandy in India). Mansion House Whiskey is also very good!! (I dont drink but my dad does)  I'm sure the current management has the tenacity to come out of this in flying colours.. Long Term INVEST.. CHEERS!!

PN: This blog is not for suggesting or giving any investment advice.. it is more of a time log of my investment journey.. Pls do your own deep dive and get advise from a SEBI registered investment advisor  (I am not an investment advisor!!)

=happy Investing
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2 comments:

Anonymous said...

Good luck to you sir...hope the story turns around for good...right now many holding loads of negative feedback on the name!

As always a well articulated excellent write up

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