TCX, management speak in an annual report or their tone is not important. Read what Philip Fisher says in Common Stocks and Uncommon Profits, under Chapter 8 on ‘Five Don’ts for Investors’, point 3. Don’t buy a stock just because you like the “tone” of its annual report. And he explains why.
I have pointed out the risks. Ultimately, you shd make your own investing decisions - its your money, after all 
Well CI both the things you said are correct viz., " management speak in an annual report or their tone is not important. Don’t buy a stock just because you like the “tone” of its annual report.", and “you shd make your own investing decisions - its your money, after all”.
To take the second point first, its our hard earned money and that is the reason why we need to evaluate each proposition rigorously before putting in our buying decision. However, while doing so we don’t have to be biased… we need to see both the sides of the coin and then evaluate which side is heavier.
Now, to take your first point, you are again right that management can’t be evaluated on the tone of the annual report or what is said in the annnual report. However, here one thing you are missing that to put a company’s management’s to rigourous test, you need to evaluate its management historically and check whether they have kept their words. If management is found to have kept its words not one but many times and almost every time then you can safely assume that management will keep its words in future too and management is well in hold of its business and so can predict the trend correctly. Here, Riddhi’s management scores fully as its not one but many times it is found to have delivered what it has said. You need to refer historical annual reports and the projections given there as also check past media interactions of the management. On both the counts management has delevered far ahead of what it has said. Hence, the question of integrity which you are raising on the management of Riddhi is a point out of contention as even the management has not a single share pledged also.
Do evaluate both the sides of coin by putting in some efforts and then if there is some valid point do come out with it so that discussion becomes productive and interesting.
Rgds.
Mahesh
Hi Mahesh,
What kind of rough sales and net profit figures do you expect in dec quarter?
regards
hitesh.
Hitesh, my conservative estimates for Q3FY11 are 240-270 cr. topline with 19-23 cr. bottomline.
Rgds.
Mahesh
There is one aspect in Riddhi Siddhi that has not been debated enough.The implications of Riddhi Siddhideciding (Mar 31, 2010) todemerge the businesspertaining to its units at Viramgam, Gokak and Pantnagar into the wholly owned subsidiary of the Company, where new technologies can be brought into, and enter into a joint venture with Roquette Freres.Necessary agreement to this effect has been entered into with Roquette Freres, the company had announced.
I had kept this aside for lack of ability/knowledge to deconstruct the same:). Am making a start here, and asking members to carry this forward:
.The minority shareholders will suffer an equity dilution of —fill in the gaps, please
Hi
Scenario 1 and 2 look very complicated and difficult to predict. Since the deal has not been announced it is to be assumed that there are disagreements about the contours of the deal between both the parties.
Best deal for the shareholders would be if Roquette were to increase their holding from the current around 14% to something more substantial at a premium to the market price and that will benefit the shareholders immensely.
Delay in announcement is the likely reason for the underperformance of the stock currently.
Yes the best deal would have been an upright increase in stake by Roquette, but that’s not happening. The Management has said (think there was some mention in Mahesh report somewhere) the announcement of demerger was necessiated because Roquette wants to avoid taking stake in listed company…perhaps it also wants to avoid the open offer, which will increase acquisition cost.
Its gotta be scenario 2 or 1…scenario 3 is unlikely to come by. Not sure if 2 would lead to equity dilution in any way?
If not, is it better than 1?? Confusing:)
Well Donald so many ifs and buts but investment is based on correct prediction of these only and I must commend you for bringing varied issues related to a company into the focus. I like guys who dwell deeply into focus areas as such guys enable to assess whether we are on right track or not and you are one of such guy who will bring the error of judgement to minimum with your thinking.
Now to dwell into your given scenarios… first and foremost thing which you are missing in your points is that the financials you are seeing or projecting ahead are minus Roquette… Yes - as you see in scenario 1 or 2 if Roquette comes into picture these are not the figures correctly put out as if Roquette has any meaningful contribution to the JV or subsidiary as you put out, the entire blueprint will be ready beforehand and the first thing they will do is set-up a major plant here in India and that plant will have almost 5-10x capacity that currently of Riddhi in entirty. You see Roquette is a 2.3 bn. euro or 140 bn. INR MNC and if it has to make a country foray it will not be small like 20-30 % growth on the scale you are talking about… it will be an exponential growth in the initial period from the current scale and then a steady growth.
Second, if its not the country foray but a niche product foray, the figures you are putting out might be right but then it will have share in such products only… this scenario is quite unlikely.
You are right in your saying… Roquette will not probably settle for just a profit share… you see the deal Riddhi wants to work on is such that management wants itself to be used as a vehicle for Indian foray by Roquette and at the parent level it wants to bring in all the cash. In the deal they want Roquette to do all the funding and take care of all the associated expenses and give-in the technology. On their side they are providing the existing plants as quick launch-pad as also they will put to service their quick execution capability to enable the foray to be as fast and efficient as possible. They want the venture to be majorly managed by Riddhi with participation of Roquette in it and that is the reason why deal is not going through even after so many months. When Roquette gives in so many things it has to have a major say in the management— this is what Riddhi management wants to avoid and are negotiating hard for it.
The scenario hitesh or tcx is talking about of Roquette taking a stake in listed entity and triggering open offer is highly unlikely as also your scenario3 as put out by you of deal not happening and Roquette going all alone… you see Roquette can’t afford it as it has to use local expertise for a country foray and w/o Riddhi it can’t make Indian foray… Riddhi is a company enjoying 35 % market share all over india and 45 % market share in northern india with efficient procurement policies and long standing reationships with existing customers… if Roquette tries to dump Riddhi… it will take 2-3 years for Roquette to set-up plant and bythat time Riddhi management will sell its company to CPI andCPI will become a major Indian player ahead of Roquette. Hence, this thing is a silly thing we are talking about and Roquette and Riddhi can’t do w/o each other. Deal canget delayed but it has to happen one day.
Also, the probabilities all we are discussing here is alright, but one thingfor what I am sure is the shrewdness of Mr. Ganpatraj Chowdhary and it is worthwhile to note that he was the one responsible to make Roquette take 15 % stake in Riddhi. He is such a guy who will not sell out easily and will try to extract maximum benefits possible… Hence, whenever the deal happens I am sure will be in benefit of the listed entity… If the deal doesn’t get finalised by FY11 in Q4 we will surely see a tie-up with Roquette in polyols segment.
Rgds.
Mahesh
enough.The Siddhideciding todemerge the business Link: http://www.bseindia.com/qresann/news.asp?newsid=%7BC3E16D00-BEB3-4ECA-AB8D-EB047806B4BE%7D¶m1=1 pertaining Freres.Necessary same.
.The __ )—fill_
Thanks Mahesh. I have always appreciated your willingness and effort to bring others on the same page -to your conviction levels!
It’s necessary to continuously look for the downsides while building one’s conviction -especially in concentrated bets, like the one I am mulling on Riddhi Siddhi. A one-sided story can be dangerous.The ifs & buts are so that we can all decide better how strongly to bet, or do we need to moderate our bets depending on whether this is a long-term play or a short-term mispriced play. or atleast be aware of the distinction right from the start.
So let’s discuss a few things we have not discussed so far, again, e.g the sheer size of the opportunity if the deal happens:
There is merit in your argument that if Roquette enters the market, it will enter in a big way. Roquettehas plants in Italy, Spain, the United States, the United Kingdom, Germany, Romania, China, South Korea.
1). The China Plant started in 2004 with a capacity of 150000 tpa, or roughly 3x Riddhis current capacity.So 5-10x new capacity is probably unrealistic unless Roquette may like to use this base as an export hub, which is unlikely again that it reportedly has 10 facilities in Asia alone.
2). What was China’s per capita starch consumption in 2004? Was it at the same 6kg levels that India is now or say will grow to in 2 years by when the new capacity becomes available? that may give a better idea of what supply the market can absorb? Roquette may need to spend more time to develop the market before 5x-10x capacity can be absorbed locally -even with high-end product introductions
Another aspect that we keep skirting:) Impact of the structure of the deal, 100% subsidiary divesting stake to Roquette (now that we are sort of clear this is the most likely scenario) :
1). Will there be equity dilution impact on listed entity shareholders? If so how can we quantify it?
2). Ifyou reduce the listed entity to a holding company status with just windmill and minority interest, is it any longer attractive?? Will anyone want to invest in that business?The options then may be to wait for the cliche “long” term when valuewillbe unlockedthrough a buyback or listing of the subsidiary or such other corporate action. Will such a business get valued at anything more than 0.5x Sales, let alone 1x Sales, ever??
3). In short, while this deal may be good for Riddhi Siddhi and its promoters, is it likely to be good for small shareholders?? Considering that the best deal for small shareholders would have been if Roquette upped its stake directly in the listed entity, triggering an open offer and things like that. But we agree thats not happening!
DNAHM37688 | 11/21/2010 | Author : Gopal Modi | WC :325 | City-Ahmedabad
Soul Search
http://www.24dunia.com/english-news/shownews/24/More-on-Religion-Spirituality/8189965.html
Managing director of Riddhi Siddhi Gluco Biols Ltd, Ganpatraj Chowdhary says he strongly believes in Chinta karo mat, daro mat, honi hokar rahegi — a phrase he read somewhere. It means that one should not worry about things beyond oneas control, as whatever is meant to happen will happen.
Relax, think positive, be disciplined, and you will succeed in life.
Discipline is the order of the day. I think that one needs to discipline oneself to achieve any goals. Discipline should not be restricted only to work; it should be applied to the entire lifestyle including the daily routine of eating, sleeping and reading.
Again, keeping the mind loaded with all sorts of tension doesn’t help in finding any solution. One should relax, think positive and then act. Positive thoughts are very important for the right action. In my case, I always see to it that my desk is clean, so that I can think ahead. I have seen people living in under constant stress, running round the clock without knowing what they want from the life. Sometimes people also worry about things which are beyond one’s control, which is foolishness.
Good thoughts are most important for success. And for these, one needs to have peace in mind, positive thinking, and good reading. I am fond of reading too and that is not restricted to the newspaper. I love to read religious, spiritual books, Gujarati literature. One of my favourite books is, Rashmi Bansal’s ‘Stay Hungry Stay Foolish’ where she has pro…
Hi Donald,
Let me reply to your points one by one below in bold :
dangerous.The
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I agree with you 100 % Donald and so in my writeup before I appreciated you as w/o you we will miss other side of the coin.
Roquettehas
1). capacity.So
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The ‘5-10x’ phrase that I used for was because… when a big MNC like Roquette enter a country they don’t just do it for name sake; instead they prepare aroadmap of multi-year expansion and that is what I call blueprint and that blueprint has to be of atleast 5-10xcurrent capacity of Riddhi otherwise they will not be interested. The chinese foray of Roquette that you are talking about is only the initial capacity that you are looking at but you are missing on the fact that in the span of just 4 years it established 3 plants (2005-2009) and even expanded existing plants.
**
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2).
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You are right, Chinese per-capita consumption was at around 6 kg. in 2004 and Indiawill reachestimated 1.8-2.2 kg this year. Secondly, you must understand one thing that Roquette is spending time or studying Indian market since 2006… the time by which it took stake in Riddhi… it has already tested Indian markets via Riddhi in a passive way and now if it has decided to enter India as an active player there may be some concrete reason for this… My analysis makes me believe that Roquette is finding Indian untapped sweetners market attractive as also its leadership in polyols segment can be perfectly put to use here. Exponential growth in Chinese per-capita-starch-consumption was mainly driven by starch-based sweetners and with Indian sugar consumption more than that of China, Roquette sees a great opportunity here as many of its clients also have base in India and they also must have sensed this need going ahead in their business. Also, as you must be aware Chinese Govt. is resorting to all sorts of curbs on various businesses and Starch sector is one of them where it has decided to go slow on allowing fresh investments. However, the consumption of starch there as also worldwide is booming and to satisfy this demand Roquette has to look somewhere else then China and India may be the better option for that.
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skirting
1).
2). Ifyou business?The valuewillbe unlockedthrough
3).
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Well Donald, in my 12 years’ financial markets’ experience I have learned one thing that we need to take bet based on positives outweighing negatives and while assessing negatives as also positives we should try to look far but not that far which will refrain from investing in a proposal which has in the forseeable future positives outweighing negatives. With due respect topossible scenarios dwelt by you I must say one thing that when the scenario is not clear on deal front, we need to look at other aspects… don’t you think atpresent Riddhi is getting a valuation which is not more than a holding company valuation ?
When I have a company, which has traditionally traded in between 7.5-8 p/e available at 5-6 p/e based on coservatively estimated EPS, whereas, on the other hand I have all its smaller size peers trading at quite a premium to it… do I think just an uncertainity over deal makes me give a lower valuation to Riddhi than its peers or even its historical valuations ?? I don’t think so… this is a case of premium valuations not getting it because of the unbelievable stupendous growth it has shown so far… Let the markets absorb it and then we will see the upward correction in valuations…
Also, when we have Chowdhary family’s only listed entity being Riddhi Siddhi as also because of the growth achieved by this co., Mr. Chowdhary getting a good name in society he being the leader of many religious as well as local associations as alsoon October 25thhe being called as a penalist in a leadership summit held at mumbai, do I think that he will go for personal benefit only by foregoing minority shareholders’ benefits… here again I don’t think so…
Do I think that deal with Riddhi is priced into the current market price… A slight negative Yes… A slight positive or A Very Positive or A Very Negative … No.
So, here I have a company which is undervalued on historical parameter as also peer parameters but is likely to sign a deal with world’s 3rd largest cornstarch major and so I should refrain from giving it a fair valuation… I don’t think so… and even markets can’t do that unless there is some heavy negative surprise in the deal which is unlikely or negative in Q3 results which is also unlikely… If the deal doesn’t get announced by announcement of Q3 results and Riddhi continues with the policy of declaring numbers way ahead of others as it has done so in Q2 the Markets have to give it a valuation which is atleast aligned to peers and then when the deal happens and it becomes a holding co. it has to correct from such rallied valuations if it has to do so atall.
This is just my analysis and my point of view and no way I am saying that there are no negatives to investing in Riddhi… the only thing I am saying is that I feel positives are outweighing negatives at the current juncture but a significant market correction can take it to lower levels than desired.
Rgds.
Mahesh
Thanks Mahesh for writing at length.Some things are clearer now.
With a 1.5-2kg per capita consumption of starch in India in FY11, the market may be able to absorb by FY14 (when the new plants may come) additional capacities of say 150000-200000 tpa, not more.
Now the deal (110% subsidiary giving 51% stake to Roquette) issue. The company’s PR did not mention any stakes, so to asssume 51% for Roquette and therefore a minority stake to Existing shareholders of Riddhi in the venture is a BIG assumption.
On the other hand, considering the arguments made of Roquette coming in a big way, it also seems likely that they may not settle for less than a controlling stake in the subsidiary.
Frankly this is something that I can’t dissect by myself and need more time to think about/consult seniors to help understand. That is the main reason I am also trying to get people like you (and your network) involved in thinking through what appears to me, a very crucial issue - that decides the basic attractiveness of the stock.
I do consider Riddhi undervalued and am invested substantially in it by now, but am not so sure that it is a long-term bet if the deal structure is like I assume it will be. We must understand the implications the deal has for the stock, and then take our final call.
Let’s wait Donald… I am told Board Meet of Riddhi is scheduled to be held on December 10 2010 to discuss these issues and the road ahead for the company …so lets see what comes out of it.
Rgds.
Mahesh
length.Some
** Frankly understand. **
Mahesh, Can you provide clarity to me in 2 major areas:-
Thanks Mahesh. More clarity by early Dec will be good.
-Donald
…so
I agree with Mahesh here, when the valuations are cheap and froth is not there, we should be patient and look more into the positives than negatives. Its very tough to predict the future and in the above scenario, I don’t think the structure will be a big negative for the shareholders. If the deal happens, positives should be greater than negatives.
If the french co takes a major stake and pumps in money, the company will only strengthen and valuations shouldn’t fall off then. Yes, may be in short to medium term minority shareholders might not get a quick upside but is that the sole reason for investing in this stock??
Regards,
Ayush
PS: I may be totally wrong and have the liberty to change my views if needed 
As of now I’ll wait for more clarity.
Hi Abhishek,
With due respect to yours, Donald’s and others points, I will like to now speak only after Dec. 10 2010 meet of Riddhi evenif it becomes a non-event. If you see my previous replies, I have already answered both of your queries but still to talk again in brief rgdg. your second point, Indian companies, especially of paper, f&b, textiles and allied industries, aremostly adopters of efficient foreign production processesses and when worldwide these industries have benefited using starch & its derivatives there is no reason why Indian companies should not benefit from it or will not benefit from it. hence, sooner or later they need to adopt this trend and 30-40 % growth is not required industry-wise as its like this if u are using 1 % starch and now use 3-5 % starch then evenwith a 10 % growth starch industry can blossom. Also, there is hugely unpenetrated market of starch-based sweetners in India and worldover these same cos (MNCs) of F&B industry are widely adopting their use. Hence, there is no reason to belive that such trend will not catch up in India. Agreed, tastes here might be different but we have nothing to loose as we are starting with minimal base at present.
All said and done, I must tell of you on these forum to study starch & starch derivatives markets deeply (of not india but world over) and then look at Indian sector. I amnot telling that I can’t be wrong but unless some other factor like tapioca starch facilities coming up or worldover starch sector degrowth starts happening and all… doesn’t come up I feel no reason why I should not bet on these sector’s long term prospects. We need to continue reviwing the developments every now and then and reassess the situation therein but for that first we need to correctly understand the current situation.
In Dec.10 board meet, in case if its not a non-event, evenif any minor negative comes up I will be the first one to comment on it. It might turn up as said by Donald that in composite restructuring scheme listed company might be left with just power venture and a 49-51 % shareholding of booming subsidiary. But one thing we all have to agree that in case if Roquette turns an active partner in India it will mean unfolding of a whole new chapter for Indian starch sector which will see its companies command higher valuations than historicals ones. I don’t think Indian investors as also Indian companies of the sector are prepared for this and so repeatedly I am saying in case if meet is not a non-event it will be interesting to study its implications.
Lets wait and watch and I reserve my comments till board meet’s result is known.
Rgds.
Mahesh
Mahesh…first of all thanks for your diligence on this story…
Personally, I am a natural skeptic. It may have its drawbacks, but it has kept me out of a lot of trouble in the markets. I question everything. And because I am not too intelligent, I don’t understand things easily!!!
As you said, lets wait for Dec 10…and in the meantime I will also try to read and gather as much information as possible on this. I might come back and ask some more stupid questions. I would request you to excuse my ignorance and explain, since you have spent so much time and effort on this.
I agree with you Ayush in general. I am also thankful to Donald for bringing out in the open a downside angle that was initially ignored by all of us -it can have implications, and just may be the main overhang on the stock currently.
You see with Mahesh’s passion and the length at which he writes, the numerous reports he has made, there was danger of the positives completely overwhelming the negatives:)’ Like Conservative Investor mentioning, hey not enough discussion on negatives. but Mahesh, hat’s off to you anyways!
I am a believer in the stock, but I will not go overboard just because the stock is getting cheaper by the day, I have been made more aware by this vibrant discussion -hey don’t be so gung-ho, there might be some downsides too.
I remain invested in Riddhi Siddhi and will wait for more clarity, before loading up or easing down:) I too reserve the right to move either way:)
The board meeting of Riddhi Siddhi Gluco Biols will be held on 10 December 2010 to consider composite restructuring scheme. http://www.indiainfoline.com/Markets/News/Riddhi-Siddhi-Gluco-Biols-to-hold-board-meeting/3419305813
Capital Market / 13:57 , Nov 25, 2010
On 10 December 2010
