Blue Chip Tex Industries Ltd - Excellent Numbers


(Nikhil Goyal) #1

Bluechip Tex is in the business of twisting the polyester texturized yarn. It has one manufacturing unit in Silvasa.

For the past 5 years, it is showing exciting growth in terms of sales. From 12 Crore sales in 2011 to 111 Cr sales in 2015. The 1st two quarters of FY2016 have also shown an excellent growth. The TTM sales currently stands at 136 Cr.

From Operating stand point, the company has shown an increase of WC by 8 Cr in the last 5 years (6 of which is in 2015). However, against that they have generated OCF of 15.5 Cr. The only concern we could find in the operating space is the OPM, which hovers around 3-4%.

From financial standpoint, the company has a total debt of around 9 Cr, and has debt equity ratio of 1.39. ROCE is around 23-24%.

Though the company has only 1 production unit, it capex is involved in installation of new machines at these locations, such as in 2015, 1 Draw Texturising Machine and 2 Air Texturised Machines were installed. The market demand of such products is something we are trying to figure out, and may be the community here can help.

The risks that we found are:

  1. OPM is very low, 3-4%, not sure if industry norm, or the company issue.
  2. Related party transaction. Almost all of raw material is purchased from Beekaylon Synthetics, in which all the Khemanis (promoters) are shareholders.

Now, the above two risks can be related, or separate. We are trying to find more info on this.

Lastly, this stock is available at a PE of 9 currently. We are searching answers for following questions:

  1. OPMs in this industry.
  2. Capacity Utilization of current assets, and how much sales can be reached going forward.

Disc: Invested at a tracking level

@akash_1cr and Nikhil


(Vishnu) #2

Hi Nikhil, Good find, I was going through their numbers and these are my findings

  1. Numbers look great. Their working capital management looks good.

    (From screener.in)
  2. Looks like our senior member Ayush Mittal’s father Satya Prakash Mittal hold some of this company’s share. This alone worth more digging.

    (Source: BSE)
  3. Cash Flow statement Looks fantastic
  4. Concerns
    • Lot of related party trades. Most of the working capital advantage comes from their sister concern “Beekaylon Synthetics Pvt. Ltd”

    • Market cap is too small…Nano cap
    • 53% of the shares held by promoters are pledged.
    • Debt/ Equity ratio is more than 1

On a separate note Silvasa (http://travel.india.com/silvassa/) seems to be nice tourist location, why can’t some of member’s here arrange a a meet up here…sort of mixing business with pleasure :slightly_smiling:


(Akash) #3

Thanks @maravan21 for taking a look into this. One more thing we take it as a concern here is OPM which is quite low. There could be multiple reasons for that one of them being related party transactions - they are selling and buying through Beekaylon. So, the meat of the business is with Beekaylon.

Among other things, they have machinery on rent from Beekaylon which seemed not quite right. It may be good to have low asset base and good sales, but for a manufacturing company doing it with a related party brings up some questions. So, what could be the business reasons for such a mechanism.

Thanks,
Akash & @goyal_nike


(Nikhil Goyal) #4

Hi -

Bluechip Tex has released its December quarter results.

Sales and other numbers are more or less same as previous quarters. However, it has increased its OPM to 5%, which is good.

Also, its 9 month EPS is now more than the last year EPS.

Nikhil and akash_1Cr
Disc. Invested


(sri krishna bhutra) #5

Had a talk with Compliance Officer of the Company.
He was wary of divulging any details. Interaction summary is as given below:

• Some new machines have been installed and have started production and will scale up the total production going forward.
• They are also trying to sweat their machines more to improve production and operating profit.
• They manufacture some value added product and this material can be used in home furnishings etc
• Company doesn’t export. Though they are open to exporting their products.
• Production will gain pace going forward; he was correlating it to a train gathering pace on a railway track

Discl: tracking quantity


(Nikhil Goyal) #6

Hi Sri Krishna -

Thank you for the updates. We have also tried to reach out to company, but not able to.

Its great to know that new machines are being installed, but I guess we do not have a number, and to which extent the production will be increased.

Also, the new information about value added products, what types and target revenues?

I guess such information can only be obtained from management, or plant visit.

Is it possible to have a con-call with the management?

@akash_1cr

Disc: Invested at tracking level


(rvetri) #7

Hi friends - Be watchful. More than 50% of the promoters shares are pledged for a long time. Why should promoters of a company pledge their shares. Particularly when they claim to make profits. Banks will be willing to lend them. In any case, there are so many companies who do not do such risky and unethical things.


(sri krishna bhutra) #8

Results for Q4 FY 16: http://www.bseindia.com/corporates/anndet_new.aspx?newsid=27125be1-e4cf-4fe1-8e8f-f9b20ae70196

EBITDA has doubled compared to previous years’ Q4. Profit is similar to previous years’ Q4 due to higher finance cost.

Would want to know why was the finance cost so high ?
Also long term debt has been reduced by near 1.5 crs

Thanks
Krishna


(sri krishna bhutra) #9

Excerpt from AR FY16. Good to see management has talked about expansion in the AR (page - 17)


(Nikhil Goyal) #10

Hi Sri Krishna -

They have talked about it in the last AR as well, however, not so prominently. The missing information here is their current capacity utilization.

They do not have any capex expansion plan this year, and they are also giving dividends. I am looking for information about how much more sales can be done with the current capital mix? Any idea where we can get that information?

Thank You,
Nikhil and @akash_1cr


(abhi2525) #11

Hi Nikhil, are you still tracking this company?

The nos. look too good to be true and a 20 Cr market capt for a 130 Cr topline 3 Cr bottomline is undervaluation at its best. Mr.SP Mittal is still a share holder going by Mar-17 SHP and in fact, he as increased his shareholding from 26K shares in Dec-16 to 28.3K shares in Mar-17. Looks to be very promising.


(Nikhil Goyal) #13

Hi @abhi2525

Sorry for late response, has been off track for some time because of some reasons, however, yes, I agree, it does seem undervalued.

The only concern I have is lack of information, and updates, and it is difficult to track it except for waiting for annual reports. I think this could be one of the reason, why this is so undervalued. Another reason could be the related party transaction with Beekalylon.

2017 results hasnt shown any growth from previous year. So, its still a watching game.

Thank You,
Nikhil Goyal


(Nikhil Goyal) #14

Hi All -

Update on bluechip future plans in their 2017 annual report.

REVENUE

“The Company is now planning an expansion in its present products items and has finalized capital expenditure of approximate of INR 21 crore comprising of construction of factory building and installation of Two (nos.) Draw Texturising Machines and Six (nos.) Air Texturising Machines. The project will be financed by Internal Accruals , Promoter directors and Bank . With the successful implementation of this expansion programme your Company is anticipating increase in turnover by INR 12 crore in this year & INR 58 crore in 2018-19.”

Company’s 2017 revenue was 140 crores. So, as per this an increase of 40% in 2 years time, which seems fair given that they are increasing capacity of Draw Texturing Machine by 40%, and doubling the air texturising machine capacity. This goes with the assumption that the hired machines will continue to exist.

Return on Capital

So, company’s has an OPM of 4% annually. So 21 crore investment will provide an additional return of (4% of 58=) 2.3 crore. This is approximately 10% of the investment.

There are assumptions in these calculations, that they continue to have the same OPM and that they continue with the older machines.

Financing

They have mentioned that they will do it by internal accruals, debt (both promoter and bank). The internal accruals stands at approximately 10 Cr in reserves, 1 Cr in cash and already have 3 Cr in debt. Even if they use debt for remaining, it will significantly skew the debt equity ratio. Such a situation might not be good for such a small cap.

Any thoughts?


(Amit Jain) #15

The industry and its prospects are terrible.

Texurized yarn industry has huge, behemoths, and Blue Chip is very small in comparison. These giants are having a tough time servicing loans, and generating any notable profits… I see no way Blue Chip Tex, a nano Cap, can survive.

In that light, I feel right in assuming that these numbers are mostly a hogwash. There really cannot be reasons convincing enough to invest into this.

However, if there is something you want to get out of this, then follow this company and see how numbers in annual reports are whitewashed to raise capital from banks and equity investors.

Please do not invest in the textile sector, and definitely not in a texturized unit.


(Nikhil Goyal) #16

Thanks Amit.

Have a similar feeling, it is difficult for a company of 17 Cr market cap to raise 21 Cr market cap. Have my doubts.


(James Sebastian) #17

Blue Chip Tex industries reported good results in terms of profit and EPS for Q2.

image

Results Here: http://www.bseindia.com/xml-data/corpfiling/AttachLive/4e02e3eb-bc49-4ecb-bd61-498a5ff14732.pdf
Disc: Holding 2.5% of PF.


(nitinver) #18

any idea as to why this stock has fallen 30% in last two sessions.Does it become a attractive play to invest.


(dharmeyshashar) #19

I am going for the AGM. I am available on [email protected]. I can share my contact numbers there.


(Ayush Mittal) #20

Hi @dharmeyshashar,

It would be great if you can try understanding the following:

  1. The co has delivered very good growth over last few years - reasons for the same? Something about the business model
  2. Majority of the transactions are with unlisted group company, which seems to be a large player. So how are the margins etc decided? We have seen a lot of volatility in past…so whats the sustainable no to look at? Are there defined policy around margins etc? Will the growth of this company be linked or limited to the unlisted co?
  3. What are the main factors to influence margins?
  4. Plans going forward?

Regards,
Ayush


(dharmeyshashar) #21

Yes Ayush,

I was expecting someone to mention some points of investor concern. My sense is that the reason for the company being so largely undervalued is their related party transactions mainly with Beeyklon Synthetics. I think I should get an opportunity to ask them about the above concerns.

Regards,
Dharmeysh