What about the de-pledging that they had promised?
Few highlights from conference call yesterday:-
Capacity Utilisation
Unit 1: 600MT + 300MT(addition in current FY) ==================85.98
Unit 2:1025MT ================88.51
unit3 :75MT ====================77.33
Unit 5:4500MT ========================(yet to be operational) (expect to commision this financial year)
Unit 6: 300 MT + 450 MT(part of it has already started ) == 12.38%
lasa lab:- 600 MT + 100 MT(coming up) =====72.38%
urdhwa chem :- intermediaries for lasa lab vet API 2800 MT === 84.90%
As of today existing capacity is 5400 MT operational … Additional 5250 MT is coming this FY which will make 10750 MT
4-5 years to become completely debt free.
Employee headcount is 850.R&D comprises about 25 employees.
Depledging of shares will happen partly in september and October.Target is 0% pledged shares by November.As prepayment of loans will attract penalty, funds are currently sourced in banks and depledging starts in mid september.
Organic growth of 12-15% in FY 17 (it doesn’t take additional capacity in to account)
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On thing the management couldn’t explain or at least I couldn’t understand why the net debt have gone up from 200 to 237 Crores from March to June quarter. They mentioned around 27 Crores is from the promoters but still for the company its a debt. There was no appropriate response to where the proceeds have been used for. They also mentioned the cash at hand was ~12 Crores so not sure how can they depledge the 35 Crores loan in coming months. And also some question market on the free cash flow generated during the quarter, what has happened to that.
Overall the management was transparent however seems they serious lack the capital allocation skills and financing expenses. I feel the finance function is somewhat lacking the depth and expertise though the business prima facie is good.
Discl. Small allocation
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I think that was a brilliant question. If your receivables and working capital days have gone down, your operating cash flow should be (net profit + depreciation + decrease in working capital) or (14.5 crores + decrease in WC). So at least 17 crores might have been generated during the quarter, and there was no capex. And if promoters have given a debt of 27 crores, the total cash (+ investment) should be 44 crores against the reported 12 crores.
some cash might be employed in current investments.
On a related note, if the net debt has gone up how come the interest costs have come down from 8.25 Cr in Mar quarter to 5.5 in Jun quarter on consolidated basis. There seem to be many ifs and buts before situations gets cleared in coming quarters.
Another open point for me:
Given the FCF they would generate growing by 15% y-o-y they would generate at least 80 Crores yearly and thats quite a lot if it happens. Promoter said in the call they would reduce the debt 20 Crores yearly. Now two questions arise-
- With this pace, they can’t really replace full debt in next 4-5 years
- What would they do with the balance 60 Crores if they feel the need of additional capex in coming years
Too many riddles to solve. Any help is much appreciated!
1.Promoters said they are paying the interest of 20 cr & as term loan matures in next 2-3 years & they will pay off the loans as schedule & would be keeping the Bank limits so won’t be writing off entire debt but their tgt is reducing it by approx 100 cr in next 2-3 yrs .
- They would be replacing the high cost debt with the low cost one with Packing Credits & other Bank limits instead of finance cos.
3.They are capitalising the interest on Capital Work in Progress as mentioned in their AR . But still not get hold of how the interest cost has reduced from 8.25 cr to 5.5 when they haven’t payed back any debt rather added to it ?
Disc : Have a Starter position .
I started buying recently based on the de-pledging, demerger exercise.
On the call, the last question from an individual investor was on how they regarded themselves on ethics parameter? What was this question hinting to? Are there some red flags in the accounting or corporate governance? There were some negative perceptions in the market about the promoters earlier but I think now that they have transparently shared their plans, market should re-rate the company.
My notes from concall held on 17/8/2016 -
De-pledging to be completed by sept
Process of demerger underway - sent to HC for permissions
Promoter holding 58%, down from 67% but at same levels at the time of IPO. No more plans of selling promoter stake.
High cost debt reduced though total debt has increased - interest cost goes down
Exports are generally lower in Q1 since european customers are on holiday
Conservative guidance of 12 to 15% growth, confident of beating it.
Major capex already done, maintenance capex going forward, around total 85% capacity utilization
Lasa facility is already WHO GMP certified
Total employee 850, R&D 25 people
All plants work in 3 shifts.
Niche intermediary products for pharma in pipeline
They mentioned that working capital days has come down.
Has the company mentioned anywhere that working capital or receivables has come down?
Working capital days = (working capital * 365)/sales
Working capital days during FY15 = 145
Sales Revenue Fy15 (Consolidated) = 265.13 Cr
So, FY15 Working Capital = (145*265.13)/365 = 105.3 Cr
Working capital days during FY16 = 116
Sales Revenue Fy16 (Consolidated) = 413.41 Cr
So, FY16 Working Capital = (116*413.41)/365 = 131.4 Cr
A 25.7 crore increase in working capital during FY16.
Similarly, there might have been an increase in working capital during Q1. Hence, additional debt might have been used for working capital needs. We have to wait for the company’s annual report to get a clear picture on cash flows and WC during FY16.
I think the management has mentioned a decline in receivables and wc days in Q1 compared to Q4. And sales has actually slightly declined QOQ, so I’m assuming that some amount of cash must have released from operations.
Please correct me if I’m wrong. I don’t know the specific calculations for computing quarterly wc days.
I don’t know about 80 crores FCF. FY-16 EBITDA was 80 crores, FY-17 EBITDA might be 100 crores. Assuming 25 crores tax, 20 crores interest and 10 crores additional working capital, we can expect a debt reduction of 40-45 crores. The management is very conservative in their guidance.
Transcript of latest concall
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In my opinion a lot of clarity has emerged from that concall. Conservative commentary by the management in terms of growth and profitbaility also bodes well.
The capacity numbers and the utilization factor seem to indicate that the growth will be higher than the 15% indicated by the management.
Hi,
Understood that capacity would be doubled by end of the year so 2018 will be a bumper year. They have some patents and into manufacturing of niche Iodine derivatives. Plants working in 3 shifts with capacity utilization of 85-88%. EBITDA are expected to be maintained at 20-22%.73 Cr out of 237 Cr debt will be shifted to LASA Lab post demerger so Omkar will have 164 Cr probably by end of year. Trade receivables came down from 130 Cr to 106 Cr with reduction in days by 29 Days. Long term debt will be reduced in 4-5 years, with more cashflow, this will be done in 3-4 years…all these are telltales of good biz.
However if we look at other side of coin, management was found to be unclear on the queries asked by Mr Ajith S in the con-call. Omkar is awaiting for some approvals from AUZ and NZ. Could anyone pl help to understand.
Thanks in advance.
Disc.: Invested 1-2 month ago.
Why I invested in Omkar ? Steady growth, good product line ups, proposed demerger , cheap on PE and PEG basis. My concerns - Debt and pledge shares. I think management was confident in last concall about release of pledge , reduction in debt. Once court convened meeting happens for demerger it will be another chance to ask Management about two concerns and progress. I think management should now walk the talk to build investor confidence and improve corporate governance.
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Sir,
Have u done any due diligence on promoters or see any red flags on that front. Few I could list are ;
- Management went for warrants & then sold that stake to depledge the shares acquired through that warrant. Warrant though legal looks to me as shortchanging the minority shareholders .
- Key personnel Omkar took a stake in a stock broking co . Why would a Chemical co. undergoing expansion & doubling capacity would want to take a stake that to of 1 cr in a stock broking business . DO they want to actively trade the shares ?
- In the last con call a investor asked Mr.Omkar has how they rate themselves on ethical management parameter ? That question is not there in the transcript shared.
- The co mentions they publish their annual statement in Economic times & Maharastra times in 2010-11 AR. why now the court convened ballot on Sept 26 they advertised on unknown Free Trade Journal & Navshakti Newspapers?
- My next step is to see the remuneration pattern & any investments in sister concern of the promoters & if I can found something will share here .
Meanwhile If any due diligence or ground reports on management ,please do share .
vivekp,
Thanks for raising concerns. My reply.
- Depledging done to reduce expensive loans, issuing warrants is fine with me.
- thats personal investments
- no idea, but not material
- why spend money in ET, as such court convened meetings r mere formality.
- If you find something let me know please.
Thanks
hi ,
- i am not able to connect the dots as to how the interest on QoQ has reduced inspite of debt going higher by 20 cr . If u know pls share.
- Thats personal investment & mgmt can do anything but I am trying to find an intent .So the question was in that context.
- This question was in relation to are there any signs which we r missing as the question was raised in con. call & Ppl attending con call r not the "tip based " investors .
- high cost debt retired and replaced with promoter low cost loans
- agree
- next couple of months crucial to see if promoters r deleveraging and depledging. Demerger a major trigger and time to ask same Q’s to management again.