Portfolio update

Sold KHAITANELE

GEECEE ventures

• The company has sold of some assets and has cash equivalents ranging from 292 Cr to 441 Cr (Refer calculations at the end), so calculations of cash equivalents per share range from 86 Rs to 200 Rs
• The company has sold of its chemical plant at M.P and Windmill at Maharashtra as of September 2009 to Lanxess India Ltd (http://lanxess.in/en/about-lanxess-india/)
• Existing plants: Chemical plant at Ankleshwar, Gujarat and Windmill at Jaislmer, Rajasthan
• Promoter holding: 58.76%
• Intends to invest the proceeds in ventures like NBFC and power-generation (including wind-power). This it intends to do over a period of coming two years.
• It has completed a share a buyback of 40.50 Lakh Shares in April 2010 (Total outstanding shares after buyback = 206 Lakh shares)
• The buyback was at a price of 120 Rs, the promoters also sold some of their holding, so even after the buyback their net-holding almost remained same:

So more than “buyback” it was more of “take some money away from the company” kind of scheme?

• Shyamsukha’s and Aroni commercials are promoters. They spent around 48.6 Crores in share buyback

• Active Subsidiaries: Gwalior chemicals bvba, Belgium. (Accumulated losses of 3271 Euros = 8 Lakh Rupees),  GCIL Finance, accumulated profit of 69 Lakhs
• The company had a loss of 131 Lakhs from operations for the June 2010 Quarter, but other income constituted 280 lakhs (what is this other income? Not sure), so net profit was 165 Lakhs.
• The company has given unsecured loan of 9258.7 Lakhs (at 7% rate of interest) to subsidiary company GCIL Finance. (Even though annual report suggests the loan is being paid back, the subsidiary seems to be paying back the loan, as it the loan outstanding loan amount has been coming down)
• The company has following investments:

• Ignoring other unquoted investments, the company has investments worth 17,243 Lakh

• Sundry Debts worth 330.71 Lakhs
• Cash on hand 654 Lakhs

• Loans and Advances (considered recoverable) , deposits worth: 16,600 Lakhs

• As you can see, there is an amount worth 56.88 Cr which is holdback amount from the sale of assets to Lanxess India. This amount is held in an escrow account, and according to the annual report will be included as extraordinary income as and when they receive it.

• Current Liabilities and provisions are at 8862 Lakhs, But the provisions includes the 56.88 Cr holdback amount
• So let us compute the provisions without the 56.88 Cr holdback amount: 2136 Lakhs
• The company has net asset block + Capital WIP worth 3633 Lakhs
• Let us consider the cash + cash equivalents per share:

Number of outstanding shares in Lakhs	206.27
Serial number	Item	Amount (in Lakhs)
1	Quoted Investments	17243
2	Sundry Debtors	330
3	Cash on hand	654
4	Holdback amount in escrow account	5688
5	Loans and Advances (not including holdback amount of 56.88 Cr)	10989
6	Liablities and Provisions (not including holdback amount of 56.88 Cr)	-2136
7	Outstanding loan to subsidary GCIL Finance	9258
8	Debt	-22.57	Small amount,Ignore
9	Outstanding loss from susidary Gwalior Chemicals Belgium	-2.43102	Small amount,Ignore
Scenario 1: Not considering 56.88 Cr holdback amount
Cash equivalents, add serial numbers: (1+2+3+5)	29216
Liabilities, add serial numbers (6+8+9)	-2161.00102
Net cash per share	131.1630338
Scenario 2: The outstanding loan given to subsidary goes bad
Cash equivalents, add serial numbers: (1+2+3+5)	29216
Liabilities, add serial numbers (6+8+9+7) (The outstanding loan given to subsidary goes bad)	-11419.00102
Net cash per share	86.28011335
Scenario 1: Considering 56.88 Cr holdback amount (and loan given to subsidary goes bad)
Cash equivalents, plus holdback amount add serial numbers: (1+2+3+5)	34904
Liabilities, add serial numbers (6+8+9+7) (The outstanding loan given to subsidary goes bad)	-11419.00102
Net cash per share	113.8556212
Scenario 1: Considering 56.88 Cr holdback amount (adding the outstanding loan amount given to subsidary)
Cash equivalents, add serial numbers: (1+2+3+5+7) (adding the outstanding loan amount given to subsidary)	44162
Liabilities, add serial numbers (6+8+9)	-2161.00102
Net cash per share	203.6214621
Scenario 1: Considering 56.88 Cr holdback amount (without adding the outstanding loan amount given to subsidary)
Cash equivalents, add serial numbers: (1+2+3+5) (adding the outstanding loan amount given to subsidary)	34904
Liabilities, add serial numbers (6+8+9)	-2161.00102
Net cash per share	158.7385416

I think the biggest worry for the stock is what the promoters did earlier: “the buyback” where they sell their own stake. This was the reason the stock came down from 90 – 100 Rs to 64 Rs. I might be willing to take a bet on this one though.

As usual feedback, criticisms, counter arguments are hugely welcome and  appreciated a lot.

Number of outstanding shares in Lakhs	206.27
Serial number	Item	Amount (in Lakhs)
1	Quoted Investments	17243
2	Sundry Debtors	330
3	Cash on hand	654
4	Holdback amount in escrow account	5688
5	Loans and Advances (not including holdback amount of 56.88 Cr)	10989
6	Liablities and Provisions (not including holdback amount of 56.88 Cr)	-2136
7	Outstanding loan to subsidary GCIL Finance	9258
8	Debt	-22.57	Ignore
9	Outstanding loss from susidary Gwalior Chemicals Belgium	-2.43102	Assuming currency conversion rate of 1 Euro = 62 Rupees), Ignore
Scenario 1: Not considering 56.88 Cr holdback amount
Cash equivalents, add serial numbers: (1+2+3+5)	29216
Liabilities, add serial numbers (6+8+9)	-2161.00102
Net cash per share	131.1630338
Scenario 2: The outstanding loan given to subsidary goes bad
Cash equivalents, add serial numbers: (1+2+3+5)	29216
Liabilities, add serial numbers (6+8+9+7) (The outstanding loan given to subsidary goes bad)	-11419.00102
Net cash per share	86.28011335
Scenario 1: Considering 56.88 Cr holdback amount (and loan given to subsidary goes bad)
Cash equivalents, plus holdback amount add serial numbers: (1+2+3+5)	34904
Liabilities, add serial numbers (6+8+9+7) (The outstanding loan given to subsidary goes bad)	-11419.00102
Net cash per share	113.8556212
Scenario 1: Considering 56.88 Cr holdback amount (adding the outstanding loan amount given to subsidary)
Cash equivalents, add serial numbers: (1+2+3+5+7) (adding the outstanding loan amount given to subsidary)	44162
Liabilities, add serial numbers (6+8+9)	-2161.00102
Net cash per share	203.6214621
Scenario 1: Considering 56.88 Cr holdback amount (without adding the outstanding loan amount given to subsidary)
Cash equivalents, add serial numbers: (1+2+3+5) (adding the outstanding loan amount given to subsidary)	34904
Liabilities, add serial numbers (6+8+9)	-2161.00102
Net cash per share	158.7385416

Khaitan Electricals

My twitter friend Soham Das (@sohamdas) who is one of the best minds I have ever acquainted with, suggested I analyze KHAITANELE. So here is the post. He also has provided great feedback in the comments section.

Khaitan Electricals.

Historical EPS:

2005	2006	2007	2008	2009
3.50	9.70	10.38	11.78	-4.16

The reported EPS seen a year-on-year growthof 20% until 2009, where it dropped -4.16. Superficially it might appear that there was huge drop in revenue and lead to the loss.

There was a drop in sales, but that was not the reason for loss. The loss because of an exceptional item of about 9 Cr (loss due to fire).

This is one reason , why just looking at EPS may not make sense, (especially in screening). We need to know the real reason for a drop in EPS.

The reported cash EPS for 2009 was around 5Rs per share.

Year 2009 saw sales of 285.70 Cr in sales and a profit of 10.66 Cr, with this in mind, lets look at what was the quarterly sales in year 2010:

March 2010 Quarter: Sales: 152.47 Cr Profit: 7.2 Cr and an EPS of 1.89 Rs

June 2010 Quarter: Sales:  99.41 Cr Profit:  4.79 Cr and an EPS of about 1.08 Rs

The turnaround in sales is amazing when compared to 2009.

Let us analyse from purely an assets point of view:

1. The company has reserves of 88Rs per share excluding all the debt.
2. The company has fixed assets worth 35 Cr (book value), that amounts t0 30 Rs per share
3. Total ( 88 + 30) ~ 118 Rs
4. If you consider the net current assets, they are around 200 Cr ==> 173 Rs per share

So let us assume the company does an annual sales of around 480 Cr (150 + 90 + 150 + 90), and a profit of 24Cr, that is an Profit per share of around 20 Rs per share. If they do achieve these sales figures it will be positive surprise. But it might be difficult to sustain the sales achieved in the first two quarters.

The CMP is around 140 Rs after a huge jump from 120 levels.

The downside seems to be limited and I will possibly buy.

This exercise confirmed what I was thinking about a few days back: Just looking at EPS and some ratios for screening may not be beneficial.  Its just as Sidhu once said “Statistics are line mini-skirts, they do provide some guidelines, but they hide important information”.

I should come up with a better way to screen stocks, one idea I was working on right now is to look at price to net profit ratio within stocks of the same sector and then shortlist for further analysis.

Analysis – Garware Wall Ropes

GARWALLROP is engaged in the manufacturing of Ropes & Yarns made of nylon and plastic polymers of various sorts and nettings.

P/E: 9 to 10
P/B: 0.85
D/B: 0.51

Promoter holds 55% of the stock, which is a plus.

Pretty much consistent EPS, except for one quarter in Dec 2008, where it was EPS of -2.05. The growth in revenue or profit growth is not spectacular, but I am analyzing it from Net Assets point of view:

a) Net-Net assets per share: 23 Rs
b) (Reserves – Long term debt) per share: 31 Rs per share
a + b = 54 Rs

Net assets per share: 51 Rs
These caluculations are according to 2009 Annual Report, the last quarter results were inline with earlier results.

So given that share trades about 20-25 Rs above the 54Rs (which is (Net-Net Assets + Reserves) with Debt removed twice, to be conservative), it is a bargain. I went through the corporate announcements and did not find any major negatives.

I have bought a small position and see how the stock moves.