Ganesh Benzoplast the cash generating chemical storage/tank farm king


(ravish) #1

GANESH BENZOPLAST LIMITED
Introduction
Ganesh Benzoplast is a three decade old company started with
manufacturing, exporting and importing premium range of specialty
chemicals and have added Liquid storage business 2 decades ago. Had
some unrelated business like salt making and operation of vessels (safety
vessels which carry out evacuation or fire fighting for the operating sites)
for ONGC. Salt making business got destroyed in 2001 earthquake and
ONGC terminated contract. So the trouble started in 2001 and 2003.
Company is in BIFR and it has planned to come out in FY 2017-2018.
Company’s chemicals are very much in demand and they will be in near
future as they are used in food, pvc and lubrication industries. Tank farm
business will be the key growth driver for the company as it has gross
margins in the range of 45 to 50%.

Business:
Food preservatives, Plasticizers for PVC and polymer, Petroleum
Sulphonate and lubricant additives. More than 70 chemical products are
produced. This business has been the drag on the overall profitability of
the company for many years but now as the time is passing it is showing
the strength and has come to operating profit level which will be the extra
positives from the current improving situation for the company.

 Chemical and oil storage business at JNPT (Mumbai), Goa (Mormugoa)
and Cochin. With total capacity of 3000000 Kilo Liter. JNPT is operating
at full capacity and the expansion at this site has been initiated. New
steel pipe has been laid to cater expanding need. This liquid storage
business requires the continue upgradation and monitor of existing
infrastructure so that the new capacities can be added and the safety
aspect of the operation is taken care of. Company has been on capital
expenditure mode for last few years to expand and to cater more liquid.
Services such as Product Blending, Logistics support via inland Rail
Transport, Bunkering-Barging, and Drum Filling and on site product
quality testing are also available.

Financials:

*Financials have been lumpy from time to time. One cause for this would be the fluctuation in
the prices of its raw material (crude oil) price coupled with slowdown in global market, as they
export their chemicals to Middle East, Latin America, Europe, USA, Canada and South East
Asia. They have been continuously working on the profitability. During the year, they have

FY T sales T Profit Chem Rev./% P/L chem StorageRev/% TProfit storage 12-13 1183 216 557/47% -69 626/53% 285
13-14 1153 176 557/48% -92 596/52% 268
14-15 1222 41 564/46% -143 658/54% 184
15-16 1194 267 504/42% -62 690/58% 329
15-169M 895 173 393/44% -16 502/56% 190
16-179M 869 232 307/35% -58 562/65% 291

This slide shows that the cash flow is very strong and it has been used for
debt financing and not much for the capex. This is a very good sign of a
decent business for investment.

Investment rationale:

 Company has been doing working capital expenditure since last many years and its chemical plant has been upgraded with new machines and equipment so no new heavy expenditure in near future. Tank farm require constant upgradation and safety instruments installation so going forward we can assume that 5 crore per annum expenditure would be more than sufficient. Extra cash would be used to enter at new place. Expansion is in the pipeline for new places and capacity expansion at existing facilities. Promoter have been increasing their stake since last few years.

 Company’s Specialty chemical business was suffering due to high input cost low realization and one major cause was working capital stress. As company is progressing they are generating very good amount of cash which can easily take
care for the future growth plan.

 Debt is down from 470 crores in 2007 to 150crore in 2016 with the help of cash generated by Liquid storage business and write offs of debt by the lenders.Total Equity has come to negative 30 crore on sept-2016 from negative 166 crore. Company have not gone to any type of equity dilution since last 6 years (may be they were not able to find the takers but for now this is a positive point for me).

 Its liquid storage business possess moat. It has very high entry barriers like extensive experience in handling every class of liquid (classified as A B C type of liquids), to get land at port, heavy capital expenditure for new capacity and have to fight for the contract in front of ISO certified companies.

 Future demerger of both business will unlock huge value.

 Capacity utilization at Goa and Cochin is 80%. In coming quarters the new capacity added at JNPT will also come online. Growth of few quarter can be seen till the full capacity utilization is done.Planning to add LPG storage tanks at Goa site.

 If the future of chemical industry is very bright in India then import and export of chemicals will be beneficial for this company. Valuation is reasonable in this unreasonable market.

 Trade receivables have always been low with comparison to revenue and trade payables. This is also a sign of investment grade business.

Management pedigree:

 MD is young and dynamic person and has been doing fairly in turning around the company.
 We can find a lot about the MD Rishi Pilani in this interview http://afternoondc.in/business-investment/themaking-
of-a-turn-around/article_9449
 Have not gone for any stupid decision in past many years.

Some Analysis by others:

 We can refer to following report


http://smallcapvaluefind.blogspot.in/2016/11/ganesh-benzoplast-on-track-of-perfect.html
 Recent good comments by Brickworks rating.
http://www.brickworkratings.com/Admin/PressRelease/Ganesh-Benzoplast-BankLoan_46.50Cr-Rationale-
22Jun2016.pdf
http://www.rakesh-jhunjhunwala.in/top-10-potential-multibagger-stocks-to-buy-now

Risk:
 No new capacity addition in Chemical storage business.
 Major leaks at site and the liability part of environment can destroy the company.
 Entry in to unrelated business and repetition of past mistakes of giving loan to associate
companies.

Disclosure: No holding.


(ravish) #2

Sorry some mistakes in posting the report can help myself. Couldnt correct the image file. really sorry for that. please bear with me.


(Amit) #3

Risk reward is High. This is at an inflection point of turnaround but you cannot take a big bet on this one.

Cheers,
Amit


(Sarabjeet Singh) #5

IMHO we shouldn’t copy the content from someone’s blog. Rather just put the URL (which is already there for same blog but a different post though). Rest I would let admin figure out if it’s ok.


(Aditya Mehta) #6

**

Seems like a Turnaround

**
the EBITA margins are on a upward trajectory from 11% in fy1 to 24%in Fy17… the debt has come down …capital work in progress of 15crs and Reserves are improvings…


(vikrantmehta888) #7

I have dealt with this company in past and found the management to be absolutely unethical. They will have absolutely no interest in shareholder’s interest.


(chets) #8

Could you kindly elaborate on your comment?


#9

The proceedings of BIFR will give sufficient evidence about the unethical practices followed by the Management earlier. I am not sure whether there is any change in management recently. I could not find the proceedings of further hearings by BIFR. http://www.bifr.nic.in/asp/sopupload/42_2009_162015_173.pdf


(vikrantmehta888) #10

I dont want to use abusive language in this forum, and without it i really find the vocabulary insufficient to describe the management.

I myself am a manufacturer of specialty chemicals and this M**** company purchased my material against a PDC. They have absolutely no shame in bouncing the PDC, not receiving the notice of 138. Issuing the warrants and all is also useless against such CHOR management.


(vikrantmehta888) #11

BTW, this incident is about an year back and the management hasnt changed since.


(ravish) #12

Thanks for pointing the problem in this cash generating machine. One more concern is that the company has been to bad phase for last so many years if i am not wrong then it is more than 15 years as the problem started with 2001 earthquake. Since then management has taken this much time to turnaround or make some improvement in the business, but introduction of Junior Pilani gave me some ease to study further as he is more than capable of running this simple business. He did not took salary for few years this also gave some confidence in him. There have been news regarding the leakage of the chemicals also.Protest by locals at Goa site was also mentioned on internet. I gave little thought to these problems because i think all these will be part of this business. Some doubtful related party transaction in past were also reported but management has not done all these stupidity in near past as per the disclosures in ARs. So i gave it a thought and put the discussion to this respected forum to get some more thoughts and info regarding them.
But this red flag regarding the recent interaction of a business transaction has discouraged to invest in this company right now. I will give it a pass and will look it after some concrete info on major developments.
I would like to have more thoughts positive and negative both as it will give good insights to evaluate other businesses also.


(chets) #13

thank you @vikrantmehta888 and @nagesh_reddy for your inputs


(Hardik) #14

I have not looked at this company. Just noticed that promoters are offloading and thought will bring it to everyones attention for greater good. Pump and dump at work?

Discl. No holdings


(krishna) #15

Being contradictory, 2 cents from my side.

  1. The stake sale is done by minority promoter , not mr pilani or his son.
  2. Stock is in consolidation after the recent runup, i doubt whether it will go below 42rs after such a massive breakout.
  3. Nothing to comment about promoter , as i don’t have any information.

Let us see how market reacts over next few months.

Disclosure: Invested


(SecretInvestor) #16

GB …all pledged shares released today from Kotak Bank.


(shanid) #17

http://www.bseindia.com/corporates/anndet_new.aspx?newsid=ced58b97-1899-4068-8907-451553edc8ed


(shanid) #18

A board meeting of the company wil be held on 12th July to discuss about setting up a LPG terminal by the company at their Goa terminal.

Very intresting development.


(Mukesh Amar) #22

This post is written by Vardharajan a member here, i used to admire his views when he posted here. Maybe things are changing for good for the company, but i feel like giving it a pass looking at the risks involved.


(ravish) #23

Please point out the risk and concern you see for this company. From my side the major risk would be heavy leakage of chemicals and the liability due it.


(Mukesh Amar) #24

Hi ravish it’s a personal call, with the limited amount of tracking it is fair to assume what credibility the management holds. I don’t mind letting go an opportunity on that front. Second is whatever cash they are generating its out of legacy assets here again mgt quality is not put to test. As pointed out in this thread non-payment of client pdc is a legal offence. With change in mgt it looks things working for the company but overall growth and scalability is questionable. Again the demerger may increase prospects for the cash generating business but the ailing business with all negatives will haunt it as the bad kid belongs to the same father. Hope this helps.
Rgds Mukesh.