Kiri Industries: Loan reduction and demand surge


(NamantS) #103

Yes exactly, their revenue was inclusive of Dystar’s revenue.
so going back to my Question 2
2)what is the PE for Kiri if we remove dystar revenue and profits, since this will be the business they are left with.


(phreak) #104

I had posted this earlier. Conservatively, without DyStar, Kiri is still worth 1240 Cr. DyStar made 230 Cr profit in FY18 for Kiri (37% of total profits) which means at 10 P/E, Kiri’s DyStar stake is worth 2300 Cr.

Right now only about 300-400 Cr of this is priced in (Current mcap around 1700 Cr). As we get closer to the resolution and money coming in, the probability of money coming in will increase which will increase the valuation. However, I doubt if market will price the entire 2300 Cr as there is still a hefty probability that shareholders may not benefit completely from the one-off settlement money. Conservatively, I would assume 50-50 chance of shareholders getting the money which puts my winning expectation at 1150 Cr - So add this to 1300 Cr, I think 2450 Cr is a market cap we can expect when the money comes in. After that, based on management commentary, we will see what happens - if they will do a distribution or diworsification or another acquisition and so on.


(NamantS) #105

So with a net profit of 124cr(without Dystar) and 3.2cr outstanding equity shares the current EPS comes to about 39rs.
At CMP of 550 this gives them at PE of about 14.
If we go with your assumption of Kiri stake in Dystar valued at about 2300cr and give it at 50% discount for uncertainity then we still get 1150cr cash.This cash could be assumed to earn at risk free return(bank FD) of about 7% which is around 81Cr.
Add this 81cr to 124cr this gives us a earning of 200+cr.
Adjusting this earnings for PE calculations we get a PE of around 8.
This is after taking conservative estimates for factoring uncertainity.
Kiri definitely offers a favourable risk reward at CMP.

Disclosure: Have not invested yet.


(Gaurav Agarwal) #106

Standalone net profit for FY18 is 102 crores. See below in red. I am missing something here. Your net profit is higher by 22 crore. Any reason for same?

What is you opinion about 2 crore convertible securities (including warrants)? Shouldn’t these convertible securities be considered in calculation of PE?


(Wolf) #107

My understanding is 6000-7000 CR will be received by kiri. In that case you may revise your price targets higher. I have no idea if they have any intention to pay special dividends. Plans are underway to expand through acquistions.


(NamantS) #108

We need to check consolidated numbers but just have to minus dystar’s share in those numbers.
Do this and you will get a number near 124cr.

Need to check regarding this in more detail as to when these securities are convertible and at what price are the warrants convertible.
Also yes you can arrive at diluted EPS taking into consideration these dilutive securities and arrive at the PE post dilution.However I am considering only the current outstanding equity shares in my calculations.


(phreak) #109

Standalone entity is for “Kiri Industries” - PAT for which is Rs.102 Cr in your screenshot.

Consolidated numbers are for

a) Lonsen Kiri Chemical industries Limited (a joint venture Company)
b) Chemhub Trading DMCC. (a wholly owned subsidiary)
c) Dystar Global Holdings (Singapore) Pte. Ltd. (an Associate Company)
d) Kiri Infrastructure Private Limited. (an Associate Company)

The consolidated PAT is Rs.358 Cr.

The split-up for Lonsen and DyStar in this is 24 Cr and 232 Cr respectively (Source below - From Audited financial results released by the company)

So 102 + 24 + 232 = 358 Cr. So ex-Dystar, PAT would be Rs.126 Cr which is what I was basing my Rs.1260 Cr valuation on.

My P/E of 4-5 should be modified as P/E of 8 or so if these warrants are converted. I completely missed these, thanks for pointing it out. In my later calculation, I was using Market Cap of Rs.2450 Cr - I think that calculation will still hold but the EPS calculations will vary if the warrants are converted.

The management sure did take a nice call option with the warrants to cover for a favourable outcome in the DyStar case (most warrants around Rs.360 I think) which does shortchange shareholders but then there is another way of seeing this - If the management did not have those warrants, they may have had more inclination to siphon off cash as their holding wouldn’t justify a one-time dividend distribution or legitimate acquisition/expansion. With a better share of equity after dilution, their action might benefit all shareholders when the cash comes in (relatively) and the reduction in dividend per share (if any) due to dilution, may actually be compensated with the probability of receiving a shareholder friendly action. It is very possible that the promoter may sell their converted warrants post lock-in period at elevated valuations when the cash comes in and still siphon off cash, so we will have to wait and see how it plays out but current valuations seem to have limited downside.

Disc: Hold a trading/special situations position from last week


(Gaurav Agarwal) #110

Thanks for expanding.

I think warrants need to be explored more in-depth with relevant screenshots for better understanding of fellow boarders. There are several questions like

  1. How many of convertible securities are warrants? What is the price? How much money has been paid, how much is remaining?

  2. Are there any other convertible securities issued? If yes, details.

It will be great if you show you valuation calculation more explicitly.

You valuation calculation seems of the mark here. Dystar total net profit is 615.86 crores.

Thanks

No interests.


(phreak) #111

Yes, It is off the mark in my initial post and it was pointed by @anks_v10 in his post here

which is why in my later post, I had updated this.

With my initial valuation, it didn’t interest me but when I realised that my valuation was incorrect, I thought there might be something here worth exploring.


(aashish2137) #112

I agree but I don’t have a number in mind. 2300 is the book value of Kiri’s share, it will be adjusted upward with the patent value and other repatriations made by the Chinese partner


(Wolf) #113

Hi Ashish,

Since the Dystar verdict most of the gains got erased. I wonder why kiri is languishing at this levels. There’s enough margin of safety at these levels. Is the future solution of promoter equity a massive overhang on the stock? Also, did you calculate the book value of 2300 based on the diluted equity. Will be debt free soon as well. I wonder if the market is not giving it a higher PE multiple because of the FCCB issue. I don’t know why it should be a concern, kiri will have enough funds to cancel the bonds and prevent dilution. It should trade at least in four digits, the intrinsic value is way higher!!


(aashish2137) #114

Totally agreed, infact I was about to post it as well. Also the promoters cannot communicate on their plan to utilize these funds because they don’t know the amount yet. I think the market is waiting for DyeStar valuation to be finalized or some trigger to get into this space. Similar thing happened to LEEL. It was fantastic value post durables division sale but the market realized the potential only after Porinju bought a stake.


(NamantS) #115

How much %, of the dilutive securities are FCCBs and also % of warrants?


(phreak) #116

Dyes Exports - Q1 numbers show a lot of promise.

China is continuing to import more by volume and value. Realisation I think are up due to Crude.

Dye Intermediates - Strong numbers in intermediates as well.

With China showing phenomenal numbers in Indian exports


(Wolf) #117

It’s a waiting game. According to me it’s a goldmine though it is taking some time to play out . Manish kiri came on tv and indicated the potential valuation of dystar, and there are enough smart analysts who can figure out the intrinsic value. Imagine the price at 2 x of book value. It is a definite possibility. In the meanwhile, I am looking forward to Q1 standalone numbers next month. Hope to see a substantial increase in net profit numbers given the prices of h acid and vinyl sulphone. I’m guessing a 45-50 cr stand-alone net profit is on the cards. That will get more interest in this stock. I am also expecting the case management conference of dystar to be held in Singapore in the first week of August. Still, I would appreciate if any border could throw light on the fccb conversion and If that should be a concern at all for investors.


(NamantS) #118

Thanks for sharing these numbers. Looks like Kiri should post encouraging numbers.


(NamantS) #119

The FCCB’s are not convertible until 2022. So there shouldn’t be any diltution till then from FCCB coversion

Annual Report 2017^


(Wolf) #120

Namant, these numbers were discussed by friends and fellow investors considering all factors. They may not be accurate. Let’s hope for the best. Do u think the fccb dilution in 2022 is a concern right now? This is my only concern on the stock going forward.


(Marathondreams) #121

Updates on court cases in Singapore… 16th Aug could be a big day for Kiri investors


(NamantS) #122

FCCB dilution is not a concern for the next 2-3years. However we still have warrants pending. Any idea as to how many shares will be issued through warrants?