Tuesday, July 05, 2011

JB Chemicals - Special Situation - Cash due to slump sale

JB chemicals

Though little late in the posting of this idea, the stock fell sharply over uncertainity over cash utilisation when the deal got announced to  ~115 Rs.
Have made some notes from the conf call transcript given by management ....
A
Valuation - As per CMP downside appears limited
Particulars

Amt
Cash in books
Rs per share
102.4
40% discount ('coz investing in pharma business)

40%
After cash
Rs per share
61.42854208
Total Business Revenues before deal
Rs crs
800
Remaining business revenues
Rs crs
615
EV (assuming a price/sales multiple of 1)
Rs crs
615
Net Debt
Rs crs
-22
Equity Value
Rs crs
637
No of shares
Crs
8.45
Per share value (assuming a price/sales multiple of 1)
Rs per share
75
Total Value in case of non payment of dividend
Rs per share
137
CMP on date of analysis
Rs per share
120
B
Calculation Of net debt
Debt as on Mar 2010
Rs cr
136
3 yr avg operating cash flow for 2010-11
Rs cr
80
Cash as on mar 2010
Rs cr
78
Net debt
Rs cr
-22
C
Remaining Business revenues as per mgt in concall
ROW
m$
28
Russia Prescription
m$
22
j&J
m$
20

m$
70
Exchange rate
Rs/$
45

Rs cr
315
Domestic
Rs cr
300
Total
Rs cr
615
D
Cash in books
Cash recd
Rs cr
1160
Escrow acccount (payable 15 months later)
15%
174
Balance receivable after 1 month
Rs cr
986
Discounting with 12%

977
Discounting of escrow money with 12%

147
Present Value of total money receivable

1124
Tax Rate

23%
Final in Domestic
Rs cr
865
Per share cash
Rs
102.4
E
Some +ve developments
1
Ashish Dhawan holding ~7% and buying additional 5.6 lakh shares @128 Rs in NSE after deal
Industry
: Pharmaceuticals & Drugs
House
: Private
Trade Price(Rs.)
Value
 (Rs.in Lakhs)

Deal Date
Client Name
Tran
Qty (000's)

25-May-11
ASHISH DHAWAN
BUY
565446
128.02
72388397

2
Sale of Russia business seems like good riddance as it was not returning funds anyways
3
Mar 2010 consolidated P&L sales roughly ~ Rs740 cr ...almost    half of which is stuck as sundry debtors of Rs 340 cr,
out of which    almost half is debtors more than 6 months i.e. Rs 172 cr....

Historically good dividend payout ratio
F
Possible setbacks
1
Management going back on their words like GeeCee Ventures/ Gwalior Chemicals.
Went back on their word of investing in pharma,  went back on giving dividend, announced buyback and
went ahead with NBFC.  Probability of the above event appears to be low
2
The presence of a savvy investor Like Ashish Dhawan need not ensure that minority share holders interest
is taken care of, as was seen in the Indo asian fusegear where Ashish holds 8%
G
Links:
1
2


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