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I had a discussion with management, Auditor M/s. Hitesh Aggarwal & Co. has resigned as they are not peer reviewed firm and as per the guidelines for the listed companies auditor need to be peer reviewed.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.

image

image

image

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.


#27

I was also impressed by the numbers initially but the negative cash flows were a big red flag. Btw Very valid points Saurabh. Is there a template that you use for coming out with such incisive insights?


(padi) #28

The company uses agri waste as its RM to process. The high moisture content in this RM makes it difficult to process, precisely because of which it stocks well in advance, ahead of the season, so that the plant does not see any production disruption. That ways, it ensures continuity of its products to its clients.


(padi) #29

The company has seen a significant metamorphosis over the last couple of years…from just a small briquette manufacturer when they started to a stage today where they manufacture and supply not only briquettes but also pellets to large industrial consumers as well as SME users in Gujarat. In the course of time, they have managed to develop very cordial relationships with their customers. A reasonable part of their supply apparently goes to the textile and dye industry, both of which were suffering badly (post Demon,GST etc) and have barely started recovering. The promoter (Mr. Bhavesh Kakdiya) himself was from the textile industry earlier and claims to know his industry brethren (in Gujarat) very well. He apparently is not too worried on recovery issues with his clients. That said, they are now extremely focussed on recovering and had expressed optimism that the receivable cycle would show improvement this year onwards.


(padi) #30

I am not sure why you feel this is pump and dump? i would be more than glad to know issues that concern you. I have visited their facility twice over the last 6 months and had just prepared an internal report. Shall mail it to whoever is interested. Pls contact me @ [email protected] if you would want to be updated.


(padi) #31

Im wondering if i’m seeing some diff figures. As per what i see, the gross margins are 23.25% in FY16, 19.72% in FY17 & 34.13% in FY18, reflecting an increase in gross margins in FY18 over previous years. As also, Q1FY19 GMs are 25.04%.


(padi) #32

The company, as i understand, had tax benefits for a period of 5 yrs, which has ended in FY18. The Navagam plant (existing) becomes tax paying from the current year onwards. As i also get to understand, the Gandhidham plant (new plant scheduled) is under a 100% sub structure, which is also entitled to a tax benefit.


(padi) #33

WCap has surely deteriorated, more so in FY18.their business has reasonably good exposure to the textiles and dyes industry, which had suffered with the twin impact of Demon and GST. This led to a stretched receivable cycle. That said, the main promoter (Bhavesh) being from the textile industry (prior to his Jiya venture) claims to enjoy very cordial relationship with most of his clients from this industry and does not see NPA risks arising. That said, they are very well aware of the risks associated with that delayed payments and have been completely focussed and working towards getting it back on track, the effect and direction of which should be soon visible (as per their expectations).


(padi) #34

Im not sure where you found the mgmt making claims of being the 1st in the industry. Briquetting and pelleting has been around for a while, with several players. That its unorganised and fragmented in nature is a diff issue. As per what ive managed to understand about the industry so far, the problem why it cudnt really scale up is because of the fact that the briquette and pellet manufacturers havent shown/proven consistency in supplies. And with this experience in mind, customers are slow in terms of switching over to briquettes/pellets. With the company being around for ~5 yrs now, they have some track record of consistency demonstrated, i would reckon. This would/could help them establish themselves as dependable suppliers sometime soon, post which they should ideally be in a position to convert cash faster. As also, a shift in their biz model to B2C should act as a catalyst in the process of reduced W Cap days.


(padi) #35

A deteriorated working cap cycle in the previous year sucked away cash they should have reported. And the equity dilution is to take care of 2 incremental capex that they have lined up: Gandhidham in the current year and Ankleshwar next. So in my assessment, the company should start reporting free cash not before 2020/21 (if all works well and as per estimates)


(padi) #36

It seems to be working now. May be the site had issues when you checked. That said, im also not too happy with how they have designed the site and should suggest them to get it improved.


(padi) #37

There is absolutely NOTHING unique about this company. This is not a rocket science business. It has been around for a while. Where they have managed to get it right is getting the RM supply chain in place: first doing it themselves for a year when they started and then building up network of collection agents and farmers in 52 villages surrounding their plant. Simultaneously, they seemed to have focussed on addressing yet another issues plaguing the industry, consistency in supplies. With this 2 factors in place, they have managed to grow so far.

The business currently does not have any entry barriers. And, thankfully, the management also acknowledges. Precisely because of which they are working on the B2C retail model and the entire focus is on 2 things (in this particular context), as we speak (1) to get the Gandhidham plant up and running (2) parallely keep surveying retail customers and keep a customer base ready to get burners installed, once the Gandhidham plant commercialises.

IFFF they manage to get this model successfully implemented, it could ‘act’ as a business moat for them giving them a lead start over any competitive intensity that could creep in.


(padi) #38

You also need to check how many of these companies are profitable. I have managed to pull out some of these companies’ financials, reflecting losses. Besides, what ive also done is that i have tried getting in touch with some companies (3 companies) posing as a customer of pellets. None of them have reverted to me, despite repeated calls from me! :slight_smile:


(padi) #39

Sure, its not mandatory, but I get a diff feedback in my interactions. The GEPB (Gujarat Environmental Pollution Board), apparently, is getting very strict about pollution norms. Briquette is a substitute to solid fuels like coal and hard wood, used by industrial customers. i agree, margins in this segment are not very lucrative, precisely because of which the mgmt has scaled up pellet contribution and intends to do all further capex in pellets itself, which is relatively more remunerative


(padi) #40
  1. Read my concall update (on my blog: consultantcapitladvisor.com) to understand how these guys procure their RM. Call me if you want to understand it better.

  2. From what i get to understand, Abellon Clean Energy exports most of its produce. ( i could be wrong here)