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[email protected]
This is not a buy or sell recommendation. We are in the process
of compiling data sheets of companies that we track / own so that
in future we may use these for buying / selling stocks of such
companies. Reason for sharing is hopefully somebody who has more
information / insight may get in touch with us or for a healthy
debate.
Punjab Chemicals & Crop Protection Ltd
Date : 3-April-14 Traded In : BSE B (506618) Face Value : 10 CMP
: Rs 75.90 EPS (TTM) : 8.62 P/E : 8.8 Market Cap : 93 Cr Enterprise
Value : Rs 384 Cr 52 Week H/L : 78.25 / 29.15 Website :
http://www.punjabchemicals.com/
Timeline
PCCL
1975 Established in joint collaboration with Excel Industries
Ltd & PSIDC
2003 Acquires Alpha Drug India
2006 Amalgamation of all group companies (STS, ADIL, IA &
IC, PAURAJ).
2006 Acquisition of Sintesis Quimica SAIC, Argentina.
2007 Acquisition of Agrichem BV. Netherlands.
2007 Takes stake in Source Dynamics plc, USA.
2008 Acquires 70% stake in Parul Chemicals
2009 Fire accident in Agro Chemicals Division, Derabassi
2011 Amalgamation of Parul Chemicals with PCCL
2012 Divests 100% shareholding in SD Agchem (Netherlands)
2012 Approval of CDR package to the Company under the Corporate
Debt Restructuring framework of Reserve Bank of India.
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[email protected]
2012 Gowal Consulting Services Pvt Ltd invests in PCCL
2013 PCCL sells Agro Formulation Division to Coromandel Agrico
Private Limited
2013 Board approves sale of IC division at Pune
2013 PCCL leases IC division at Tarapur to UPL
2014 Board approves sale of building at Mumbai
Profile
PCCPL is a Agrochemicals & Formulations company with Pharma,
Industrial Chemicals & International Trading divisions.
Company Snapshot
PCCL
Agro Chemicals
Pharma
Technical Bulks (Mainly exports)
Industrial Chemical
Intermediates for technicals,
oxalic acid derivatives
Formulations (Retail Market)
Insecticides
Pesticides
Fungicides
Herbicides
Biological Agro-products
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[email protected]
Particulars Insecticides Pesticides Fungicides Herbicides
Bio-agro products
Basic use Kills insects Kills pests Prevents/treats growth of
fungus Soil nutrients.
Prevents growth of weeds
Nutrients for soil. Non-chemical based
Main crops Seeds - wheat,
paddy, cereals,
etc.
Seeds - wheat, paddy, cereals,
etc.
Fruits, tea, vegetables, paddy,
wheat
All crops, sugar and beet products
Wheat and paddy
40+ branded products 13 8 13 7 4
Key regions and seasons
Across India, all
seasons (kharif
and rabi)
Across India,
all seasons (kharif and rabi crops)
West India (horticulture belt), South India (tea),
North India (apples)
Across India with
major focus on the western
market
Growing with the awareness.
Environment-friendly
PCCL Notable Independent Directors
Shri. Vijay Rai is Non-Executive Independent Director of Punjab
Chemicals & Crop Protection Ltd. He is a B. Tech from IIT
Kharagpur and has over forty years experience in Industry out of
which 28 years was with the industrial group in India "the Tata
group". He has worked in 12 different industries with the group
such as food processing, engineering, chemicals and fertilisers. He
was the CEO for over 12 years of Rallis India Ltd. He was
responsible for the growth of Rallis from Rs. 250 crores to over
Rs. 1200 crores in ten years. He was awarded in 1999 the "Most
Admired Manager" in the Industry by the Pesticide Formulators and
Manufacturers Association. He is also on the Board of English India
Clays Limited, Navneet Publications (India) Limited, Greaves Cotton
Limited, Greaves Leasing Finance Limited, TechPak Industries Ltd.
(Nairobi, Kenya), Polygel Industries Pvt. Ltd.,Viswas Business
Synergies Limited, Prince Ware International Pvt. Ltd., Akola
Chemicals (India) Limited and Sri Biotech Laboratories Ltd.
Shri. Mukesh D. Patel is Non-Executive Independent Director of
Punjab Chemicals & Crop Protection Ltd. He is a graduate in
Chemical Engineering. Besides having over 36 years experience in
various areas of finance and corporate management at Director
level. He had been active in various industry related trade
associations like ICMA. CHEMEXCIL. He is also associated with trade
related associations. At present he is on the Board of Transpek
Finance Ltd., Universal Esters Ltd., Infinity Consultants Ltd.,
Torrential Investment Pvt. Ltd., Shilchar Electronic Ltd., Gujarat
Automotive GearsLtd. ,Transpek lndustry Limited and Banco Products
(lndia) Ltd.
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[email protected]
Financials Yearly Results - Profit and Loss
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[email protected]
Balance Sheet
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[email protected]
Cash Flow
Key Ratios
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[email protected]
Quarterly Results
Shareholding Pattern
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[email protected]
Investor Returns
Period Date Price (Rs) Returns (%) 1Week 26-Mar-14 68.5 10.58
1Month 03-Mar-14 63.15 19.95 3Month 02-Jan-14 60 26.25 6Month
03-Oct-13 38.85 94.98 1Year 02-Apr-13 48 57.81 2Year 02-Apr-12
57.95 30.72 3Year 04-Apr-11 92.4 -18.02 5Year 02-Apr-09 159.35
-52.46
Src : http://www.motilaloswal.com/
Management Compensation
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[email protected]
Debtor Days
Selling a product is one thing but getting the payment for is a
totally different world. The speed at which the payment comes after
the sale denotes the importance of the product to the customer. In
the corporate world 60 90 days are the norm for the payment to be
settled.
The debtor days for PCCL seems to be improving
Capex
Exports
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[email protected]
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[email protected]
Invert always Invert
Carl Gustav Jacob Jacobi (1804 1851) was a German mathematician.
One of his maxims was: 'Invert, always invert' ('man muss immer
umkehren'), expressing his belief that the solution of many hard
problems can be clarified by re-expressing them in inverse form.
Charlie Munger often quoted the maxim from an investment
perspective.
Lets try to do that. Instead of saying why we should buy PCCL.
Lets see why we should not buy PCCL. If we have many valid reasons
for not buying PCCL, then lets skip it. If we have fewer reasons
not to buy PCCL, then maybe we should buy it
Reason 1: Is the turnaround around?
Both our operating and investment experience cause us to
conclude that turnarounds seldom turn - Warren Buffet. Berkshire
Hathaway Inc - 1979 Letter
If we think PCCL will indeed turn, we better have some solid
proof for the same
Lets look at the cause of the downfall of the financials of the
company
Cause: The Company borrowed heavily to fund its overseas
acquisitions during FY06 and FY07, which led to a severe financial
crisis within the group during the downturn. The overall
debt-equity ratio had increased from 1.5x in FY05 to 4.6x in FY08
and 13.0x in FY10 (due to loss of profit on account of fire at the
companys Chandigarh plant). Src: Crisil IER Base report
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[email protected]
Action 1: The Company started to cut its flab. Lets look at what
the company did to its divisions
PCCL Divisions as on Mar 2013
Aug 2013 Agro Formulation division sold to Coromandel Agrico
Private Limited Aug 2013 Industrial Chemical division (Pune) to be
sold Nov 2013 Industrial Chemical division (Tarapur) leased to UPL
Jan 2014 Office building in Mumbai to be sold
PCCL Divisions as on Feb 2014
PCCL
Agro Chemicals
Pharma
Derabassi
Alpha Drug - Lalru
Industrial Chemical
Pune
PCCL
Agro Chemicals
Pharma
Derabassi
Alpha Drug - Lalru
Industrial Chemical
Agro Formulation
Tarapur
Pune
Chiplun
Vadadora
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[email protected]
Rs in Lakhs
Revenue
% of Total
Revenue EBIDTA
% of Total
EBIDTA
Agro Formulation 1182 5.84 3 0.2
Industrial Chemicals - Pune 1226 6.11 4 0.27
FY 2012 - 2013 6 months
Rs in Lakhs
Industrial Chemicals - Tarapur Company IC - Tarapur Company IC -
Tarapur
Revenue 20441 789 22438 1170
PBT (207) (670) 394 (633)
FY 2012 - 2013
6 months
FY 2013 - 2014
6 months
The trimming done was well calculated. The IC Tarapur division
which contributed to 4 5% of the total sales but was pulling down
the profitability with its losses was leased to UPL.
The Agro Formulation division which was contributing 5.84% to
the overall sales but whose EBIDTA was only .2% was sold off.
The IC Pune division has got the approval to be sold.
The office space in Mumbai has got the approval to be sold
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[email protected]
Action 2: This is how the company trimmed its subsidiaries
PCCL Subsidiaries as on Mar 2009
Jun 2012 Sells 100% shareholding in SD Agchem (Netherlands) to
United Phosphorous
As stated earlier, the Company went through acute liquidity
problem as the consolidated borrowings grew to Rs. 574 crores as on
31st March, 2011. The major borrowings portion of this was
borrowings in SD Agchem (Netherlands) B.V and Agrichem amounting to
25.25 million (Rs. 175 crores approx) as at 31st March, 2012. There
was an obligation for repayment of 10.34 million (Rs. 70 crores
approx) to the banks in the year 2012-13.
PCCL
SD Agchem Europe N.V
100%
STS Chemicals UK Ltd 100%
Sintesis QuimicaArgentina
85%
SD Agrichem Netherlands
B.V. 100%
PSD LLC USA 40%
Source Dynamics
USA 20%
Agrichem B.V. 100%
PG Crop Protectiotion Ltd
England 100%
N.V Agricultural Chemicals Belgium 100%
Agrichem Helvetia GMBH
Switzerland 100%
Nedab Aps Denmark
50%
Kapchem Ltd Ireland 50%
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[email protected]
Therefore, to retire part of its debt and to improve the
liquidity situation, the Company decided to divestment of its
overseas businesses. The best proposal was received from United
Phosphorous Holding BV (the buyer), a subsidiary Company of United
Phosphorous Limited, hence it was decided to divest 100%
shareholding in SD Agchem (Netherlands) B.V and its subsidiaries
including Agrichem BV through SD Agchem (Europe) N.V. to them. This
has reduced the consolidated debt of around 25.25 million (Rs. 175
crores approx) and saving of 2-3 million per annum being incurred
on registrations of various products (Src: AR 2011 2012)
PCCL Subsidiaries as on Mar 2013
PCCL Joint Ventures Mar 2013 1. Stellar Marine Paints Limited
(45%) 2. PSD LLC (40%) 3. Source Dynamics (20%).
PCCL
SD Agchem Europe N.V 100%
STS Chemicals UK Ltd 100%
Sintesis Quimica Argentina
100%
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[email protected]
SD Aghem (Europe) NV which was bleeding heavily has been scaled
down. So we may not see much loss there. Sintesis Quimica which was
doing well till a couple of years ago, could go either way. Even if
Sintesis bleeds heavily, based on the previous action we would
expect the management to sell it out.
Action 3: Capital Infusion
Sep 2012 As part of the CDR (Corporate Debt Restructuring)
package to the Company under the Corporate Debt Restructuring
framework of Reserve Bank of India, the company issued 20,00,000
equity shares at a price of Rs 100 / share to its promoters
Sep 2012 Company allots 30,00,000 zero coupon unsecured fully
convertible Debentures to Gowal Consulting Services Private Limited
at a price of Rs 100 / debenture convertible into equity shares of
FV Rs 10 each at a premium of Rs 90 on preferential basis
Sep 2013 Company approves the conversion of 30,00,000 zero
coupon unsecured fully convertible Debentures into equity shares of
FV Rs 10
Here begins the fun part.
The directors of Gowal Consulting Services Private Limited are
Jagmeet Singh Ushpal Singh Sabharwal S/O Ushpal Singh Sabharwal and
Salim Pyarali Govani S/O Pyarali Manjibhai GovaniI. The 2 gentlemen
hold 50% stake in Gowal Consulting Services.
Mr Jagmeet Singh Sabharwal is the Managing Director of Spareage
Seals Ltd Mumbai - www.spareage.in - Spareage formed in 1959,
specialising in the manufacture of Hydraulic seals, Rotary seals
Pneumatic seals and O rings, has today become Indias leading seal
manufacturer.
Mr Jagmeet Singh Sabharwal is the director in the following
companies
Spare-Age Seals Limited U K Hydraulics And Seals Private Limited
USS Hydraulics And Seals Private Limited Gowal Consulting Services
Private Limited Accolade Properties Private Limited Ring Plus Aqua
Limited
Ring Plus Aqua Limited is a subsidiary of Raymond Ltd
A graduate of Sydenham College, Mumbai, Salim Govani hails from
a family that has been involved in the business of film
distribution. His strength lies in identifying small companies that
have great potential to succeed. Mr. Govani acquires such
businesses and transforms them into highly profitable ventures. One
such recent success has been his work with The Mount Everest
Mineral Water Ltd. An early identification of its potential,
innovative marketing, and customer education quickly catapulted the
brand HIMALAYAN to being the market leader in its category, which
was divested with
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[email protected]
management control to Tata Tea. Salim is also a member of the EO
Mumbai Chapter since its inception (Src :
http://www.chandamama.com/common/aboutus/aboutus.htm)
Mr. Salim Govani served as Managing Director at Mount Everest
Mineral Water Ltd. from 2004 to 2007
Mr Salim Govani is a director in the following companies
Axsys Health Tech Limited Sadafuli Finvest Pvt Ltdtr Co from
Maharashtra Bloom Packaging Private Limited Chandamama India
Limited Himalayan Ventures Private Limited Foresight Holdings
Private Limited Sethi Funds Management Private Limited RSB
Schalungstechnik India Private Limited Gowal Consulting Services
Private Limited Entrepreneurs Organization Mumbai ARR Bath Home
Private Limited
Wow. If this was not exciting enough, there is more.
Gowal Consulting Private Limited has an equity base of Rs 5
lakhs (50,000 shares of Rs 10). What ??? How did they buy Rs 30 Cr
of equity shares of Punjab Chemicals. Hmmm. Gowal Consulting
Private Ltd issued Unlisted Secured Redeemable Optionally
Convertible Debentures worth Rs 31 Crores to SWAL Corporation
Limited.
The security is the equity share or investments held by Gowal in
such companies agreed between Gowal and the OCD holders. The
debentures are to be redeemed in Sep 2017.
SWAL Corporation is the 100% subsidiary of United Phosphorus
Limited
100% Subsidiary
Loan through debentures
UPL
SWAL Gowal Consulting
Invests in equity
Punjab Chemicals
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[email protected]
What is the link between UPL and Punjab Chemicals?
Excel Industries is a promoter of PCCL. The promoter of UPL is
related to the promoter of PCCL (but I am not able to figure out
the relationship). Infact Shaila Shashikumar Shroff is deemed as a
promoter in the shareholding of PCCL and UPL. Shaila Shashikumar
Shroff is the mother of Shalil Shashikumar Shroff who is the MD of
PCCL.
Now that we have established the link between PCCL and UPL, lets
try to deduce the reason for UPL going through a complex
transaction for investing into PCCL.
The reasons could be UPL wants to takeover PCCL or it wants to
help PCCL. A complex transaction to takeover PCCL in the current
situation is not warranted. Already UPL has taken over some of the
assets of PCCL and if it wanted to take over PCCL a direct route
would have been easier. Also the role of Gowal Consulting Services
would be redundant for a takeover.
Lets assume UPL wanted to help PCCL. Ok the below scenario is a
figment of my imagination and I have no inside info or anything.
The 2 gentlemen of Gowal are hired or their consulting services.
Both of them have good management experience.
Started in 1985
Started in 1975
Started in 1941
Brothers
Champraj Shroff Govind Shroff Kantisen Shroff Devidas Shroff
Excel Industries
Excel (Shroff) Group
Excel Industries Excel Crop Care
Transpek Industries
PSIDC
Punjab Chemicals & Crop Protection (PCCL)
Son
Rajnikant Devidas Shroff
United Phosphorus
Limited (UPL)
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[email protected]
They are asked to turnaround PCCL. They are given a loan by SWAL
(UPL). They invest the received amount in PCCL shares. If they
turnaround PCCL, the share prices are bound to rise. Gowal
subsequently sell their PCCL shares. Gowal return the loan amount
to SWAL. The spread between the selling price of PCCL share and Rs
100 (the price at which Gowal was allocated PCCL shares) would be
their consulting fees.
So everybody is happy now. PCCL has turned around. Gowal get
their consulting fees. SWAL get their loan and interest. But then
if it was as simple as the above script then horses would fly .
Effect: The Company for the past 2 quarters has been
profitable
Positives: Amid various constraints, the Company has
successfully commissioned another 'Fungicide plant' in Agro
Chemicals Division of the Company with the technical support and
buy back arrangement from one of the renowned Multinational Company
in the month of March, 2013. The first lot of the finished product
from this plant has been dispatched in May, 2013. The Company has
projected a business of around Rs. 180 crores from this contract in
the next three years. The successful implementation of this plant
is a major morale booster for the Company. (Src: AR 2012 13)
Worries: The profitability of the foreign subsidiaries
http://en.wikipedia.org/wiki/Carl_Gustav_Jacob_Jacobi
SWOT Analysis
Strengths
Backing of the Excel and UPL companies
Gowal Consulting Services
Weakness
Debt burden
Opportunities
If the turnaround continues for a couple of quarters, the stock
could get re rated big time
Threats
Overseas subsidiaries may bleed
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[email protected]
Valuation
By a back of the envelope calculation we are arriving at an
intrinsic value of Rs 100 for the stock. The reasons being
1. If the turnaround continues for 2 more quarters, the company
will have a TTM EPS of 20. With a PE of 5 we get a price of Rs
100.
2. Gowal consulting bought equity at Rs 100 in Sep 2012
Synopsis
Since the intrinsic value calculation was pretty primitive, we
felt the further the spread between the buying price and the
intrinsic value, we would have a better chance of getting good
returns. Thus we assumed the buying price should be around Rs 50
60.
With the sudden interest (in MMB) and subsequent increase in
price, we are not comfortable sure if it will come back below Rs
60.
References
1. www.bseindia.com 2. www.punjabchemicals.com 3. www.mca.gov.in
4. www.motilaloswal.com
Disclaimer
General: This report is not a buy / sell recommendation. Buying
stocks must be done after careful analysis and the above report can
be used as a base for the analysis and should not be used as sole
basis.
Vested Interest: The author does have position in the above
stock @ average price of Rs 73. He may purchase / sell the same in
the future in the short or long term based on his conviction and
his financial situation.
Data Validity: The data is collated from various sites in the
internet. Even though we have tried our best, there may be
discrepancy due to human error while collating the data. The author
should not be held responsible for such mistakes. The data can be
looked up at various websites given in the reference section.
Valuation: The author is not an expert and his valuation may be
off the mark.
