Any Update on thier rights issue?
Finance cost increase can be attributed to plant 4.
I also noticed some good drop in cost of raw materials used. A good sign or not ?
Plant 4 is specifically being used to produce raw material hence gross margin has improved
Notes from Q3 FY18 Con call.
Partnered with CIDIC group of China to source API and sell finish goods through them in south east Asian countries CIDIC is a very recognised company in East and South East Asia as per management.
Depreciation to be around 15 crores for year.
20-25% growth in revenue
Operating profits of 22% and above to be strictly maintained
New prices have been communicated to customer due to increase in crude prices. Hence, this quarter onwards new pricing.
Growth rates may decelerate in future as business assets reach sustainable level or practically viable levels . - 100% growth rates 2 years back, 50 % last year and 20-25% going forward
2nd Quarter had rains and hence cattle de-worming campaigns,
Sales growth should not be compared Q-o-Q in veterinary industry. 2- 3 crores of updown QoQ is normal
20 Crores of additional borrowing for Working Capital. Axis bank gave 12 crores hence interest cost has gone up. Working capital has been added after 2 years.
CFO resigned and less efficient people are substituted with more efficient. CFO could be accessed in next concall.
11.Next 2-3 years growth to be 20-25%. Through acquisitions, forward integration or infrastructure of plant IV,
15 products currently. 1-2 products every year conservatively to be added with 100 crores of potential each.
4-5% of topline goes to RnD, this is expensed out. Omkar capitalized 53 crores of cost this quarter and this won’t happen here as both companies are different.
Promoter lended 27 crores
15 Axis bank lended 50 crores of CC loan. 22 crores from other bank ECB loan. Total 90-100 crores debt as of today.
No connection with Omkar Chem. No personal guarantees with them.
Margins won’t shrink.
For more understanding of deferred tax calculation please get in touch with Senior accountant of Bridge IR.
Long term borrowing was 24 crores and has come down to less than 20 crores, rest is working capital.
After SWAP holding to be 36%
Rights issue not necessarily to be 100 crores. Would be decided later on seeing market price, not on the cost of taking toll on EPS. To pay of long term debt and to do acquisitions in pharma space for forward integration into formulations space. Rights issue is going to be around June.
These are product patents which we have filed. We are patenting catalysts and not final products. This, I guess is to improve margins of the products.
Annual capex for next 2-3 years to be 15% of total sales.
Pat level to be 10%. Working capital to is 55-60 days. Working capital to be below 50 days is what management is looking at.
Inventory is 38 crores. Receivables 58 crores. Payables is 57 crores as of Q3 FY17. CWIP is 6 crores and has come down drastically as plant IV has been commissioned. Gross block is 200 crores and net block is 176 crores.
Plant IV topline impact to come in next year. Impact on bottom line has started as a backward integration product production has started. 500 tones capacity has been utilised out of 4300 tones. 1000 tonnes by FY19 (for backward integration). 2000 tones by FY20. Actual utisilsation would be 3500 tones which would be by FY21.
Looking out aggressively for acquisitions in range of 20-22 crores. Multiples would be 1x of turnover. Regulatory approach like USFDA. Veterinary pharma space.
Rights issue to be EPS accretive. All decisions of acquisitions and rights to be EPS accretive. Decision to be discussed with investors over concall
Overall a good concall
hi…didn’t understand your first point…
Like they are partnering with CIDIC to sell finished goods (Formulations) or API…currently they are manufacturing API so why would they source API from them.
Thanks for the notes it summarizes everything…I also listened to their con call.
Just to add …there was some discussion regarding T2T as well. Don’t know exactly how it affects share price performance.
It is moving to B group from 22nd February
Download the file and check Annexure IV
What is B group and how it is different from T2T
In T2T, you can sell only if you have the shares in your demat a/c. When you buy, you need to take the delivery (can not do intraday trading). This basically keeps the traders out of the particular company.
B group does not have any such restrictions.
Also circuit limit will increast to 20% in B group and this will lead to faster discovery of price, market seems appropriate.
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The Statutory Auditors resigned
Resignation of Auditor.
Earlier CFO resigned in jan’18. Is everything ok within the company?
“Pre-occupation with other affairs” or plausible deniability? This seems more and more like a well-executed demerger. OSCL around the time demerger was announced - averaged at Rs.170 (Between Apr '16 to Apr '17). Post demerger once Lasa was listed, the combined price of LASA + OSCL hit a max of Rs.300+ - Value created out of thin air. Meanwhile OSCL before Lasa got listed was trading at Rs.110+ when the promoter sold his stake repeatedly in the open market, now it is Rs.39. Lasa went to a peak of Rs.214 and gave a good exit to the promoter and related entities and is now at Rs.135. So overall Lasa + OSCL now is Rs.174 = Pre-demerger levels and Less promoter stake. Whatever value was unlocked was cleverly captured by the promoters at the expense of shareholders. I don’t know how many in this board capitalised on this clever pump-and-dump operation. Now the interesting question is, where will LASA + OSCL settle given its current price trajectory, sentiment with CFO and Auditor resignations, promoter quality and recent earnings numbers? Let’s see.
Son acquiring 11 lakh additional shares from Father at a proposed price of Rs. 170.37. That increases nearly 5% of promoter holding taking Omkar Herlekar’s holdings to 31.28. Pravin Herlekar now holds only 2.23% in Lasa.
We can clearly see that the recommendation of one of the investor during con call has been implemented. The holding mentioned is clearer
@Nolan How do you take auditors resignation. Normally it’s negative. Pravin has also been selling his stake like he did in Omkar during Q3 and we see where Omkar is. Please share your thoughts.
Indeed it may be negative. But there is just as much a chance that it could be a non-event. There could be several (not so harmful) reasons which could have resulted in resignation of auditors. In micro/small cap companies, we run the risk of having limited information to act upon. High risk results in high volatility in these stocks. And high volatility causes fear.
The Oracle of Omaha says - “The most common cause of low prices is pessimism—some times pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It’s optimism that is the enemy of the rational buyer.”
Pessimism is sometimes built upon unconfirmed news items. And lack of clarity around these news items propagates fear. I personally like such situations where I find good future potential in an asset, and yet its available at a discount because there are rumors in the market that something is going wrong. Firstly, by acquiring this asset at a discounted value I increase the upside and reduce the downside potential. Secondly, I act on my conviction that future seems brights and ignore the rumors around it. Still it is best to stay cautious - I wait for the first signs of confirmation of the rumors. If there appears a red flag, I sell out/minimize risk. But in most such cases, when the rumors are found baseless, the upside potential is huge and this is what I bet upon.
Thanks @Nolan. So, basically, we need to really see who the next auditor coming on board. If, it is a reputed one, we are good. If, it’s unknown we have to see the next quarter and full year result to confirm it’s positive or negative. Is there anything else we can do to confirm the rumor.
I am not expecting a very reputed Auditor. Omkar is not the kinds who would spend big on any account which is not a revenue center for the Company (not atleast at the moment). My hunch is that Auditors might have left due to cost/payment issues. Auditing Lasa post-demerger would require extra pains for auditors due to parental linkages, and they may have asked for additional fee, which Omkar might not be comfortable paying. Again this is just my hunch and it is primarily based on what I have gathered from the discussion above, especially from the post of @Madhurkotharay where he described the miserly nature of the management, which in a way is good for shareholders:
The current quarter financials didn’t look like doctored, else the numbers would have continued to picture an excellent growth trajectory in line with its past performance. Even the commentary from the management to mellow down the expectations of the shareholders in terms of future growth was also a step in the right direction. Dear @inteliinv highlighted this clearly in his post summarizing management commentary on future outlook:
When the red flags would emerge, they would give some tell tale signs, but right now I just feel both Father and Son are trying to clean up their houses after a nasty demerger. There may be speculation on several counts but unless there are a series of steps or any drastic measure that impacts shareholders interest, I would wait and watch on this story.
Disc: Invested 8% of PF. Averaging 134.
Now that Dr Omkar is the CEO, lot of people who were there in the company from the pre-demerger days, might be replaced , so that everyone on the management team is on the same page. The CFO and the auditors have been removed and will be replaced soon by new ones. This process of changing the management team might continue. Nothing alarming about it. What is important is that the new team should be able to take the company forward and continue the process of growth of LASA.