This just doesn’t sound good…how can a company always be under expansion/ acquisition mode. They should wait for the existing business to stabilize and repay large chunk of debt, before they contemplate such aggresive acquisition targets. Further he seemed quite content with the current year’s performance…in my opinion it was quite week.
Disc: Invested
Regards
SJ
Yes, it will be disaster it they do so.
in last two con-calls they have been mentioning of no more major capex plan for next 2 years.
though those sentences in write-up are vaguely connected having doubt of they wanting to expand now or start the planning to expand now and execute after 2 years.
I hope sense prevails and they do not do value destruction at least now keeping their words in last few public interviews/ con-calls.
Disc: invested.
Latest Shareholding is out, promoter stake is now at 36%
https://www.bseindia.com/corporates/shpSecurities.aspx?scripcd=540653&qtrid=96.01
It’s at 31.96% now (after conversion of almost 2cr warrants out of 6.67cr warrants). I will become 36.18% after conversion of balance 4.67 cr warrants, however there will be issuance of around 1 cr shares to FCCB holders for the outstanding 13.5 m $ FCCBs. It is good to note that almost Rs. 285 cr out of Rs. 600 cr has been infused (25% of Rs. 90 on 4.67cr warrants and 2 cr*90) by the promoters.
What is the total debt of this company?
In September 2017 it was around 3700 cr.
Once all the FCCBs are converted, how much will be the remaining debt?
Below is the reply I received from the IR team to queries regarding debt reduction and expansion plans.
"We have already reduced Rs 290 crore in 9MFY18. This is through internal cash generation. Besides promoters are infusing 600 crore, of which 280 crore is already infused on 26th March 2018, balance Rs 300 crore plus will be infused by September in the form of warrants at Rs 89. Hence, the entire infusion is to reduce debt in SPTL.
Also capex we do is to add specific technology or cater to customer which is growth oriented for both India and overseas. We generate adequate cash to fund capex and reduce debt."
We as investor is still confused to whether increase the stake in sptl at current prices or not… Meghmani organics is looking much more attractive to me…But still confused between sptl and meghmani organics…All senior members views are welcomed…
What is the good amount of debt that this company can have? Interest rate cycle already started.
“Promoters Infusing capital”
“We generate adequate cash to fund capex and reduce debt.”
Good write up on the current state of SPTL.
SPIL - IDFC - Apr 2018.pdf (384.2 KB)
Discl: Not invested. Yet to develop conviction.
Helpful indeed. thanks.
“Focusing on Retail.”
“KKR deal could improve corporate governance perception.”
Not saying that SPTL is in a similar boat, but the brokerage report might as well have been on Kwality 12-18 months ago.
Disclosure: Holding since before demerger.
Interesting that Shailly Eng trades at 45x earnings and Sintex trades at 15x earnings. Both produce same stuff (except Pre-fab). It was this gap which got me to Sinpla, though Shailly was my original target! Ended up buying Sinpla! So to put thought to words. What can bring the gap down?
Pre-fab haemorrhage stops. Prefab revenues will be down 20% yoy this year. When this will stop is anyone’s guess. Another 20% next year will bring revenues down to Rs1300cr where I think it will stabilize.
KKR deal is signed and reduce cost by 125-150bps? Good saving on Rs. 2000cr debt. Again anybody’s guess going by management integrity.
Debt reduction by more than 300cr expected. Best of the three to happen. For all its capital allocation insanity, this company has always shown positive OCF (checked AR since 2014). So any restraint on CAPEX will mean debt reduction.
Shailly tanks and gap reduces!!
As I see it kitchen sink EPS is at around Rs4. Given that Pre-fab has no EPS contribution and Europe has about 75p contribution you have Domestic Custom Moulding at about Rs.3 EPS (give same multiple as Shailly and you get Rs.150 + Rs8 from Europe. Subtract from this management discount 40%? and still this should be at 90ish.
One thing that is troubling me is, for a company which was raising debt like a drunk, where did the promoters get 600cr suddenly to pump in. Hope not from Panama money!! Wish they had done this while expanding in previous years. Have not gone through the textile business, but from what I have read here, that one is a Titanic.
Disclosure - Hold at avg. price of Rs. 75.
Very interesting that the report talks so much about KKR deal its structure etc. but I could hardly find a publicly available news item on this front. Any idea how much this part of the story is reliable? Does anyone have the latest conf. call transcript?
Apart from PE, Please also look check what these companies product list and industries they serve… and client list…
In case of Shaily - their sales is only few hundred crores…but the clients Shaily serve are multi million/Billon dollar businesses…how come a few hundred crores sales company doing/getting business with MNCs of very high quality…so they are doing some thing which others r not doing… and …also the opportunity size is big…
Check also the Debt levels and return ratios…and management commentary…r they walking the talk…
unfortunately i cannot see the attachment, but if it has boeing, airbus, bmw in it, then rest assured sintex also covers those billion dollar companies. Think you are confusing CM for those moulded chairs by wimplast and nilkamal.
“Check also the debt”…i have already highlighted that, so not sure what point you are making. But they do have cash flow and if capex is kept in check, it will reduce fast.
the market is definitely not believing the words of the management and hence this super cheap valuations. i mean with a base case 250cr net profit after removing the one offs of de merger it is trading at 13x which for a consumer business is really cheap. at price to sales it is .5x… don’t understand these valuations. either the promoters are about o get jailed for some big forgery or the market is acting super dumb. everyone says that markets reward cash flows. last year it declared 1000 cr ocf. fcf of 600 odd crores makes this a 5 times market cap to fcf. i am flabbergasted at these valuations. this reminds me of meghmani organics 1 year back. market cap to fcf of 4 to 5. was stagnant and getting beaten down every day. all of a sudden just flew and doubled in a matter of couple of months. in summary as long as the cash flow numbers they are declaring aren’t supremely fudged i am comfortable with a 5 times mkt cap to fcf. ultimately this should reflect in reduced debt higher earnings due to interest burden coming down and hence earnings going up. my projections are as follows. this year if you remove the one time costs of de merger and sap the net would have been 250 odd crores. in the next 3 years promoters infusing 600 cr plus assuming fcf of 300 cr per year total debt reduction will be 1500 cr leading to interest reduction of 150 odd crores. just considering current margins and sales static for 3 years means net profit will be 400 cr in 3 years. even if we assume a 15 pe due to reduced debt, this will double from current levels 100% conservatively. risk factor is promoter getting caught in some scam. one interesting fact i saw ceo samir joshipura. he is an sprain alumnus. a veteran with indian promoter held companies. was part of the team which remoulded trident. check out his linkedin profile. i think a professional of his repute should be trusted upon.
On your assumption, market does not give a PE of 15 for a stock without growth. Probably PE would be around 8. On top of this, you should look at the movement of all plastic stocks which fell more than 50% from their 52w highs. At the end of the day, this is a commodity, cyclical business in a fragmented, mature and highly competitive industry whose fortunes depends on the movement of crude oil. So as such this business does not have any moat. The stock (or all plastic stocks in general) will rise and fall with crude cycle. On a stock specific level, the management have been very poor over the last 10 years and the structure of capital have always been complex with FCCBs and what not. So this stock probably deserves this valuation.
