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

Conf call transcript

2

Money control Vidoes