Jiya Eco-Products Ltd. - Step Towards Green World


(cool_gaurav) #21

I had a discussion with management, Auditor M/s. Hitesh Aggarwal & Co. has resigned as they are not peer reviewed firm and as per the guidelines for the listed companies auditor need to be peer reviewed. Second Auditor M/s. Pary resigned due to preoccupation and no other reason. In fact, they have given clean report for 2017. Also, Citibank has raised the same point before sanctioning working capital credit limit & after proper due diligence they have sanctioned the loan to the company. Due diligence process in Citibank is more stringent.

New plant will get commissioned max by september. Current plant capacity utilisation around 90-95 percent. Lot of demand for the product and Company is also planning to do major export in future

Enough RM is available and there is no shortage during monsoon season as they procure raw material in advance in the month of April and May.

Last year due to demonetisation there sales were impacted and now back to track and growing.

Generally, they do three year contracts with retail customers and revenue & margin is assured. Other customers are manufacturer of namkeens/ chemical companies etc. Use of bio fuel is cheaper as compared to Diesel and Gas. Coal is cheapest but industries are switching over to pollution concern.

Debtors are high as they are giving credit period in the range of 120-150 days and going forward expected to come down once good customer base.

They sound positive and said visit our factory & see the difference yourself. Tax rate is around 27 percent.

I hope you will find it useful. I have asked certain other queries if I get reply will update. Prima facie Company looks interesting.


(paresh.sarjani1) #22

This company has come up with amazing numbers guys…

Sales of this quarter and PBT are half of full FY18
Net Profit is almost 70% of full FY18


(rupaniamit) #23

Q1FY19 numbers are not spectacular if compared with Q4FY18. Because of increase in capacity, this growth in Q1 numbers was expected. Also, this is first time company has provided consolidated numbers. In my view, better comparison is QoQ.

Their Gross Margins have come down significantly. Numbers would have been “amazing”, if higher gross margins were maintained.

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Company will be hosting conf-call tomorrow. Will try to dial-in and understand Jiya’s business economics better.

Disc: invested (part of tail portion in my portfolio) with no transactions in last 30 days


(cool_gaurav) #24

Hi,

In my view, you can’t compare Q1 with Q4. Q1 & Q2 are generally lean quarters due to monsoon (mentioned in press release also)Raw material availablity is an issue, however, Co. has been able to procure the material in advance for first two quarters. Overall numbers are good and Co. is able to increase EBDITA margin even at higher sales. EPS for the quarter 4.50 (standalone) and expected to touch EPS of 20 for the Year. Only thing which needs to be monitor is receivables


(rupaniamit) #25

@cool_gaurav Thank you for pointing me to their press release which I didn’t see earlier.

can you please point me to the source confirming that company procured the materials in advance for first two quarters?

If I get an opportunity to ask a question on tomorrow’s call, would like to check with management if we should be expecting lower gross margins for Q1 and Q2 compared to Q3 and Q4.


(rupaniamit) #26

Was able to attend today’s conf-call and ask few questions. Below please find notes that I was able to take:

Raw Material
Raw material: agri waste – collect agri waste from radius of 25km in Bhavnagar. Have set-up network by appointing collection agents for 52 villages. Have given equipments to agents. 3500rs/ton is the cost of agri waste. Collecting only 20-25% raw material within 25km radius. Today farmers are burning rest 75% of agri waste. Enough raw material availability and can expand capacity by 10 times from current level, if needed. Here agriculture is not solely dependent on monsoon because of good irrigation facility, so availability of agri waste shouldn’t be of any problem.

Raw material: forest waste – Big portion of lands filled with weed (desi babool). There are portions of land in village which are kept mainly for growing grass for cows and buffaloes. If cleanliness is not maintained in this portion, then weed will grow-up taking place of grass. If there is famine, cows and buffaloes can suffer if there is no grass. Hence, Jiya has done contract with roughly 52 village panchayats where they go and clean-up the forest waste from these portions. Jiya doesn’t pay anything nor charges anything from panchayats.

• Cost of waste is Rs. 3500 per MT all year round. Raw material in general doesn’t cost much, but most of the raw material cost goes towards labor and transit cost. Forest waste might cost 300-400rs more than agri waste. Have to make spot payment when raw material is procured.

• Annually 32cr MT waste is generated in India according to government’s survey. Not enough 2-3% is utilized for bio fuel use. Ample room to scale up.

Retail Segment
• Briquettes are substitute for solid fuel (coal, lignite, etc) and Pellet is substitute of liquid and gas fuels (LPG, Diesel, Furnace Oil etc.). Pellets are generally sold to retail players but are sold to industrial players as well (farsan, bakery, mass food makers etc). Briquette is sold only in industrial segments like pharma and textiles. Profit margin is 2 times in retail segment also credit period is half of industrial segment.
• This business is mainly done by 100% subsidiary company in Gandhidham with installed capacity of 2.6 lacs MTPA (once installed by 3rd quarter of current FY). Initial sales mix would be 70% retail and rest industrial. Goal is to make this facility cater 100% to retail.
• Subsidiary gives stove worth Rs. 250k for Rs. 15k deposit with monthly Pellet consumption commitment (generally 7-8 ton per month) for 3 years. Management estimates to breakeven in 6-8 months of contracted period. Purchase of stoves is done from outside. Target to achieve 1500 counts of contracted users in next 1-2 years.
• Realization in retail for Pellett is Rs. 14k per MT, whereas in industrial is around Rs. 8.5k. Cost of Pellet to parent company is Rs. 6.5k and subsidiary will purchase it from parent at around Rs. 10k for retail segment. Pallet conversion total cost for parent company is around Rs. 6k-6.5k. Rs. 3.5k goes towards raw material.
• 70-80 stoves have been installed in different applications as part of R&D initiative. Attempt is to sell all of Gandhidham production for retail.
• Cost of burner of average size is 2.5-3 lakh.
Market penetration in retail is done only about 2%. 98% is there to be captured. If management is able to capture even 5% of the commercial LPG cylinder, then management’s Pellet’s revenue can be as high as Rs. 200cr.

General
• Better margins and market for Pellets than Briquettes. Doing expansion in Gandhidham for manufacturing Pellets. Management is not intending to expand in Briquettes. Production shall commence by beginning of 3rd quarter.
• Briquettes are substitute for coal and competing with it. Ongoing coal players are giving credit period of as high as 6 months to the industrial consumers. Hence, working capital is high for Jiya as it has to fight against coal players. Credit period given to industrial players is around 120 days and to retail is 60-90 days.
• Will not be bidding for NTPC tender as transit cost is higher for Dadri location and costing around Rs. 3.5k. However, today’s capacity is good enough for existing industrial and retail segment.
• Current plants running at 90-95% capacity utilization. New plant should be able to utilize upto 30% in 6 months of the current FY.
• Subsidiary is tax exempt for next 5 years. Parent was tax exempt until now and will start paying taxes.
• Most of industrial customers are in pollution control zone. Hence, they have to use bio-fuel to be compliant with pollution control rules.
• Better calorific value product from Gandhidham because of forest waste so it’s may turn out to be higher.
Entry barrier for new player would be to set-up collection network of raw material. Manufacturing can be done by anyone, but its collection network that is real hard work. Management estimates that it might take at least 1-2 years to reach the collection network at same level as Jiya. And if Jiya can have 1000+ contracted retail players, then competition will have tough time to penetrate.
• Previous auditor was not peer reviewed after they formed new audit firm. So had to change auditors to be compliant as listed company to have auditor which is peer reviewed.
• Procurement cost has been moved from raw material cost to trading cost (below gross margin in P&L) because of IND-AS changes. PAT and EBITDA margins have not changed because of this grouping change.
• Industrial: Retail breakdown is 70:30.
• Gandhidham plant is automated and will be run by only 5 other employees.
• Have total factory staff of 31 persons. Have 120-150 people’s staff on daily wage. Executive staff of 15 persons and Sales team staff of 10 persons.
• Standalone receivables are at 48cr and consolidated receivables are at 54cr.
• Gandhidham CAPEX is costing around Rs. 30.5cr.
• Briquettes (industrial) is costing around Rs. 4500 (3500 raw material + 1000 conversion cost) for realization of Rs. 5500.
• Did agreement with 52 villages during UPA government ruling to procure raw material under Nirmal Bharat Abhiyaan with help of District Development Officer (appointed by central government). There is no obligation for Jiya to procure minimum amount of raw material. This agreement is only for Bhavnagar location. No contract for Gandhidham location. Anyone can come in Gandhidham and clean forest area and procure raw material for free of cost.
• All sales are done through distributors and not directly to end consumer. These are big and reputed distributors 5-6 players. Management doesn’t expect these receivables to go bad.