Bharat rasayan ltd

(Ankit Gupta) #67

I have been following the company for the past many years. I have met the promoters twice at the AGM and they value corporate governance very highly. Have even seen their Dahej plant from outside. Their quality is appreciated by not just customers but even competitors.
About shares being in ASM - there are lot of companies which are doing well and run by able management whose shares have been put in ASM category. Dont think its an issue.
On Ritesh Securities being a shareholder of the company, its been there for more than 3 years now. Promoters are not looking to sell out their shares in the company and looking for an ‘exit’.


Weldon fincap has the same office address as Dynamic porfolio management services.

Curiously weldon fincap figures as a promoter of Bharat Rasayan.

This is Sebi’s opinion of Dynamic portfolio management services

(Macha) #69

Well done bro. Dig more and i am sure you would find more such issue in this company.
Fit case for Forensic scrutiny.

PS : Looking to buy this share below 5000 if above type more issues are highlighted and spread leading to price correction.

(Vasu) #70

Strange, you want Corp Governance issues of Bharat Rasayan to be exposed and still want to buy it at lower prices? That means you undermine the Corp Governance issues or you think Market is paying unnecessary attention to Corp Governance issues? No offense just trying to understand a behavioral angle here

(Rudra Chowdhury) #71

Many people have been watching the rise in Bharat Rasayan - because of low liquidity or lack of price comfort at entry or both. Having an one off forced sell off can possibly create an opportunity with regards to both.

In Indian midcaps, we would often go with the notion of innocent - unless proven guilty. And as long it is reasonable to beleive the management is not involved, a well executed business would always find enough buyers.

Disclosure : Largest portfolio allocation, No actions at this point.

(Marimuthu) #72

Thanks @anni23. Info like this is of great help to retain investors to stay away from scripts which are possibly risk.

(khinger) #74

Its coming out of ASM …

(vinayohara) #75

Has Anyone looked into The AR’s of previous years.
I noticed one thing, promoter kept on taking loans from company but not paying back. This amount is continuously increasing since 2014. All this is despite very high remunerations of promoters.
P&L looks bloated up as the interest payment is taken into account but cash flow shows interest not coming into the books.
Being from non-finance background, I might have misunderstood things. Feel free to correct me.

(Ankit Gupta) #76

Its actually the other way round. The promoters have given unsecured loans to the company and not taken them out. The promoters had put in unsecured loans during FY13-14 period when the company had executed very large greenfield capex at Dahej. The amount has remained in the company from that time.

(source: Company’s AR)

On the issue of high remuneration, I think that its liked to profits (commission paid as % of net profit). In such a promoter driven companies (where the promoter is hands on the day to day operations), high remuneration has been noticed across many such companies.

(gautham1) #77

@ankitgupta Their market cap is 2400 crore. ( In fact it was more than 3000 cr at their peak). But I am surprised no mutual fund holds it. I know that we shouldn’t read too much into MF buy/sell etc. We all know they enter when its already known. But 2400 crore is not a small number. And how many companies have such impressive numbers in the current market?. Its too good to be ignored. Your views?
Other thing I noticed. Their fixed asset is almost the same since 2013. But sales CAGR is 35% in this period.

(rupaniamit) #78

@ankitgupta, @ananth - first of all, would like to thank both of you to share AGM notes for both FY17 and FY18. Given BRL doesn’t conduct any con-call or share investor presentation - your AGM notes have been very helpful to get better understanding of the business and the management.

BRL has had a dream run in their business performance in last 5 years. I’m hoping to get some help from both of you to better understand the competitive advantage(s) of BRL and how sustainable would they be.

To me their biggest competitive advantage seems to be their strong and loyal relationship with their customers and that they provide pure, quality, and timely delivery every single time (please correct me if I’m wrong). Given it’s B2B company where switching costs can be tough to identify as I don’t have thorough understanding of their customer’s experience - why would their customers not switch if someone is supplying same quality product at lower price? Since BRL commands decent margins and doesn’t hold any patent or any special regulatory license - competition can always come-up for off-patent products and undercut them on price and still earn decent margins. Would like to know your take on this point. Also, please share if there is any
other major competitive advantage that I have missed.

Management has stated that they focus on bottom-line and not on market share or industry size. Also they are banking on growing by selecting “right” molecules (dropping competitive products and including newer and complex products). Also they would rely on their customers on “what to produce” than they driving/launching newer products in the market. So far I am not able to grasp whether they are big or small fish AND if the size of pond is big or small. From your notes and also through annual reports - it seems like management has been very vague and have not shared any concrete info on industry size and its future potential. In your view - what’s the likely runway of opportunity here?

It seems like the top level managers are in their mid 60s. Is there any succession plan that the management has shared?



Disc: not invested

(Ankit Gupta) #79

Hi Gautham,

In case of MF holding, the company is a closely held company with promoters holding 75% stake. Furthermore, there is hardly any liquidity in the shares. In addition, the company doesn’t meet investors except during AGM and doesnt share much with investors through ARs or investor concalls or presentation. When we discuss this issue with management, they say that their results will speak for themselves.
In case of fixed asset addition, the company had done a big capex of around 150 crore during FY12 - FY14 for setting up a new plant at Dahej. Post that it took few years to ramp up the utilisation. However, it has been doing some capex for expanding capacity and backward integration over the past few years. The details of year wise capex is given below:

For the year ended March 31, 2012 2013 2014 2015 2016 2017 2018
Capex 46.73 77.79 25.69 13.35 15.09 12.50 40.96

Now again over the next 2 - 3 years, it will undergo a major capex for brownfield expansion at Dahej and green field expansion at Sayka.

(Ankit Gupta) #80

I think one other competitive advantage for them is their chemistry skills apart from established relationship with the clients. There were few listed companies who also started their technical plant at Dahej around the same time as Rasayan did but were not successful. Very few companies are able to achieve the purity that they are able to achieve. Customer relationships especially with established customers take time to develop - price is not the only factor determining the relationship. It depends on past track record of timely delivery, purity and even pricing. Customer do note that if a supplier is not taking undue advantage of any shortage of the product that the company is currently supplying. In words of RP Gupta, the whole time director and promoter, ‘Unless you screw up, good customers will not shift sourcing so easily’. The way the company has added new customers especially MNCs and big domestic formulators also speaks about their capability.
The management apart from working on molecules which are suggested by customers, also works on many molecules which are getting off - patented. One big tailwind which is coming to most of the chemical companies in India is the shift from China to India as a strategic sourcing hub for large MNCs. Am not talking about the price increase which is happening in many chemicals due to shortage but the long term opportunity which is open to many players in the Industry to get into strategic contract manufacturing tie ups with large MNCs. I think there is huge runway of opportunities available to many agrochemical companies who manufacture technicals and have strong chemistry skills.
Mr. RP Gupta, one of the promoters and the major growth driver of the company is in his early 50s (52 years of age precisely). So I don’t think there are any issues on succession planning front. We were fortunate to just bump into RP Gupta’s son who has done his MBA from XLRI and has joined the Bharat Group recently.

(Vivek Gautam) #81

great results from bharat rasayan.qtrly eps 84 n 6 monthly 143

Q2FY19 Results.pdf (2.2 MB)

(Bhaskar Bora) #82

Why increase in trade receivables?
How are cash flows?

Accounting experts ur views please

(Ananth) #83

rating rationale for bharat group

Some key points noted:
Mr. R.P. Gupta, whole of time director of BRL and BRAL and director of BIL, has over 30 years of experience in the agrochemical industry

The group has a market leadership in many technical products including Clodinafop Propargyl (Herbicides), Lambda Cyhalothrin (Insecticides), Thiamethoxam (Insecticides) and Fipronil (Insecticides) among others for which the group is a preferred supplier**. Though there is a product concentration risk as the top 10 products of BRL accounts for around 56% of total net sales of BRL in FY18 (PY: 70%) and around 61% of net sales of BRL in H1FY19.** Further, the group has a large institutional customer base in the domestic market as well as in the international market with long standing relationship and low client concentration risk. In the international market, the group has strong presence in East Asia, South America, Europe and Middle East. Domestic sales account for around 85% of total combined gross sales of Bharat group in FY18 (85% in FY18) and around 90% in H1FY19. The group has a network of approximately 3,500 dealers and 30,000 distributors for supplies spread across the country and have 23 branches in all the operating states. The top 5 customers of the BRL excluding the group companies (BIL & BRAL) accounts for Rs. 223.33 crore of sales in FY18 (Rs. 117.98 crore of sales in FY17 and Rs. 73.81 crore of sales in FY16) which is around 35% of total sales of the company excluding sales to group companies (around 25% of total sales in FY17 and around 22% of total sales in FY16).

al segment of the group by around 36% from Rs. 465 crore in FY17 to Rs. 634 crore in FY18 as a result of good monsoon and increased realizations on back of continued good relationships with their existing clients and further addition of new customer base in both domestic as well as overseas markets. PBILDT margin of the group improved marginally from 19.72% in FY17 to 19.85% in FY18 with increased contribution of technical segment from 35% of total group sales to 42% of total group sales. During FY18, increased prices of crude oil has resulted in high prices of raw material but the company had successfully passed on the increased prices to its customers. Bharat Group is having a good customer base, with whom they are dealing with years and on a fixed gross margin basis. Therefore, increased in raw material doesn’t had a much impact on their profitability margins. PAT Margin of the group also improved from 9.88% in FY17 to 11.85% in FY18 with increase in scale of operations and same interest and depreciation expenses.

. Further, due to the seasonal demand for pesticides, the group is required to stack up variety of products as inventory in advance of the season resulting in high inventory holding period which is a common phenomenon across pesticide industry. This increases the inventory holding cost. Further, since pesticides are the last link in the agricultural operation, after having invested in seeds, fertilizers, etc., the farmers have little surplus money for purchasing pesticides. Therefore, providing credit is necessary to stimulate demand. Also, although BRL receives credit period of 90 days from its suppliers, however, the company makes early payments to its suppliers on account of early payment discount, resulting in average creditor period of around 24 days. Thus, due to such intrinsic nature of business, the group’s working capital requirement continues to remain high.

BRL is also importing raw materials for manufacturing of technical grade pesticides. Imports formed around 50% of total raw material requirements of BRL. So, the foreign exchange fluctuation risk is reduced partially on account of natural hedge

(Bhaskar Bora) #84

Any reason why all agrochemicals shares tanked this year

(phreak) #85

Bharat Rasayan looks very interesting on the surface so I wanted to take a deeper look. The return ratios are spectacular for the sector the company is operating in, the promoter holding is around 75% and D/E is reasonable and P/E as well looks fair. All good so far. The next step was to look at financials, the top and bottomline have grown at a very good pace - topline around 15x and bottomline around 100x in 10 years. Very good again, am certain it looks good on a CAGR basis as well. Perhaps too good, perhaps the best, compared to peers like PI Industries, Dhanuka Agritech, Insecticides India, Rallis etc. which piqued my interest further and also kindled my suspicions on the possibility of cooked numbers.

So, to verify I set about the usual process of checking cash flow, receivables, cash conversion, dividend payout etc and this is what I found.

  1. 10 Yr FCF is -25 Cr. So in the long run, this company is not generating FCF. However in the last 5 years, there is positive FCF.

  1. Receivables are high at 345 Cr. Receivable days are following an uncomfortable trajectory from 50 days 5 years back to 77 days at present. At the same time Payable days have also deteriorated from 32 days to 15 days while inventory days are improving and overall cash conversion cycle is pretty poor, from 66 days to 102 days in the last 5 years.

  1. The D/E looks to be improving in the above but the E part of D/E is growing mostly through receivables, so I am not sure how we should perceive that.

  2. This company has phenomenal return ratios so I expected the company to be throwing out cash but this has not been the case when looking at dividends in the last 5 years. Dividend payout was a abysmal 2% between FY14 - FY16 and 0% in FY17 and FY18. Thats not a good sign

I was a bit ambivalent about the genuineness of the numbers because it was outperforming peers but the same was not coming out as dividend but being locked up in receivables, though the incremental PAT growth corresponds to the reinvestment (incremental capital employed) and reported return ratios.

I could have ended it there but wanted to look at a SHP analysis of the company.

These are the promoters holding the 75%.

Unfortunately, this company has not been dispatching SHP to BSE since Dec '15, so I couldn’t take the shortcut of analysing via I had to do this manually by looking at the SHP on NSE (its a pain). Even there its not showing up when I want to look at recent public holders so I got the xml which was there that held the SHP and figured out who held how much from there.

The majority holders are

Ambaa Securities Pvt Limited - 4.94%
Ritesh Stock Broking Pvt Limited - 4.70%
Shiv Shankar Securities Pvt Limited - 1.92%

That did not give me a good feeling. Why are stock broking/trading firms holding 12% of the company? So overall it looks like hardly 10% is the floating stock in this company.

Even among the promoter holding, these three firms got my attention

Centum Finance - 2.38%
BRL Finlease - 2.69%
Weldon Fincap Pvt. Ltd - 3.70%

Long story short, Ravi Kumar Newatia is a director in Ambaa, Ritesh Stock Broking and Shiv Shankar and this Ravi Kumar Newatia looks to have been involved in money laundering/tax evasion in Mishka Trading & Finance -

This Ravi Kumar Newatia is also a director in Dynamic Portfolio Management which was also involved in the above scam of laundering/tax evasion and interestingly, this company shares address with Weldon Fincap which links this shady chap directly with the promoters.

Also, this Rajesh Gupta who is a promoter in Bharat Rasayan holds stake in Dynamic Portfolio Management Services which again places strong links between promoters here and big holders classified as public to the money laundering/tax evasion unearthed by SEBI in Mishka. I think this is the same Rajesh Gupta who is the promoter of Bharat Rasayan because holdings of Rajesh Gupta have an overlap with the holdings of
Weldon Fincap Pvt Ltd
(Some trading companies, gems and jewellery companies) which is also a promoter entity in Bharat Rasayan. Again this is a mess of cross-holdings similar to the one I encountered in Byke. I was simply following a hunch looking at the numbers and price-action and to me few things here look very questionble. Your mileage may vary.

(James Sebastian) #86

Interesting. … Can I company decide not to share SHP to BSE where it listed and continue to be listed there ?

(Bharat) #87

Dividends were paid in FY 17 and FY18 too though the Payout Ratio may be low. You can check from Moneycontrol or Annual Report !
Screener or any websites mainly take data from BSE but i think they do not report data to BSE from some time and thus these issues. Sometime back , Screener was showing 0% Promoter Hold in Bharat Rasayan when i highlighted and they corrected it.

Also the company is spending required 2% as CSR.
Other things which were there in byke but not here are :

  1. Here , No dilution , No Bonus Shares or split while Byke/Vakrangee has issued Bonus for more liquidity and thus easy tradings. Though , in low float stock , better chances to trap. But most of the cases where fraud discovered has issued bonuses and splits.
  2. No Rating Agency has withdrawn due to “Issuer not Cooperating” while ICRA has issued such for Byke.

There may be cross Holdings as you mentioned but we need to look more into the distribution ship aspect. Whether these entities are frequently selling and buying or they are holding from long. No doubt , the Ravi Kumar Newatia has links with the promoters for sure and his involvement in Mishka Trading is a serious issue.

The numbers reported are surely the best in the industry. The receivables days are generally high in the industry. I was not happy with the Negative FCF and poor dividends and has avoided this story as such great numbers were difficult to digest but did not dig much.

The SHP sometimes gives us an interesting picture ! Looking for more such detailed findings from you for other companies.

Disc: No holdings in Past , No interest in present !