Blue Chip Tex Industries Ltd - Excellent Numbers

Hi all,

These few points were gathered from the agm :

  • They are operating at 100% capacity.

  • No capex will come this year. They are planning it for the next year.

  • They make a differentiated product which are manufactured by hardly 7 to 8 players in India.

  • They purchase from Beekaylon because Beekaylon makes a differentiated raw material.

  • Beekaylon is a backwardly integrated company and is into same line of business as Blue chip.

  • The impact of crude increase will be shown in the current quarter.

  • They pass on the raw material increase, it takes 15 days time.

Now something about my experience of the AGM. Though it was only second time that I attended an AGM, this one looked more like an informal gathering and the management avoided the explanations by suggesting to raise queries by e-mail. Tere were some senior shareholders who were interested only in why the dividend was not raised. One gentleman took 15 minutes to explain to the management why the dividend should be raised. Another one delivered “shayaries” in management praise. But when one of us interested in details stood up to ask management the critical questions, after 2 answers they told that all the queries will be answered via e-mail conversation. The above details are gathered mainly by joining an informal conversation with Shahin Khemani.

Thanks
Dharmeysh Ashar

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So as of now I am of the opinion that this related party transaction and the management’s unwillingness to share the details are acting as a drag for further re-rating possibilities from the current levels. When I bought the stock, I simply projected market cap to touch their sales figure. It looks like that projection does not hold good. It definitely is not a fair practice to simultaneously run a similar business which is privately owned by the promoters. Want to know about other counters where similar practices are done by the promoters and particularly the valuations given my Mr. Market to such stocks.

Views invited.

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I had been working on Bluechip Tex Industries and saw that there are many transactions with respect to sales, purchases, machine hire etc from a related party “Beekaylon Synthetics Private Limited” (BSPL)

The same issue has been flagged by many boarders in the past so I thought of dwelling into this to see if some sense can be made out of their transactions

I looked a the numbers of (BSPL). It is a private company but the financial statements are available on the MCA website.

Here are the key financial details of Blue Chip Tex Industries and BSPL

Financials

Here are my observations:

  • The entire purchase of raw materials of the listed entity Blue Chip Tex is being done from related party BSPL which is unlisted

  • Sales for Blue Chip ex have grown almost 4x in six years

  • The net margins have remained around the average of 1.5% and in FY19 it has been at is lowest

  • BSPL which is a related party had sales of Rs 745 crores in FY19

  • Since 2012, the purchases of Blue Chip Tex as a percentage of sales of BSPL have varied in a range of 16-30%

  • The net margins of BSPL are better than the listed entity Bluechip Tex which average around 2.5% versus 1.5%

I have not analyzed the other transactions because they were immaterial considering the scale of operations of both the companies.
The purchases of Blue Chip even though entirely from BSPL are not a very big percentage of the related entity.
The margins of BSPL are not higher considering other companies in similar business so I prima facie don’t see a big red flag in this transaction.
I will dig more into the other numbers of BSPL and into the history to understand what’s the intention of incorporating and listing Blue Chip Tex when the business could be done through BSPL as well

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Curious case of an independent director

Mr. Vijay Mishra was appointed as an independent director in 2014

Profile

  • MBA in Finance from Newport University (USA) and also a ERP consultant (SAP)
  • Associated with Best Deal Capital, Member NSE and Partner CEO
  • Successfully running broking business in equities/commodities having taken membership of MCX & MCX-SX
  • Associated with M/s Supertex Industries Limited from June 1990 - May 2010

Supertex is a publicly listed company established in 1987 involved in manufacture/processing of polyester texturised yarns, draw warped jumbo yarn beams and sized yarn products

Performance of Supertex Industries on the stock exchange

Interestingly Mr Vijay Mishra resigns from the board as an independent director in April 2016, merely two years after his joining

Going by the narratives I was not sure why someone would leave the board so soon after joining but looking at the current profile of Mr. Vijay Mishra on Linkedin it seems like he had shifted base to Dubai which could be a reason for leaving the board so soon.

Here is a link to his profile on Linkedin

Vijay Mishra

Anyone still tracking this counter