Virat Crane Industries Limited (VCIL)


(chaitu) #1

Virat Crane Industries Limited (VCIL)

Virat Crane Industries Limited involved in manufacturing the dairy products and Famous CRANE masala products in India. The company offers its products under the brand name of CRANE. In addition, the company through its subsidiary, Durga Dairy Limited, produces and sells ghee. Virat Crane Industries Limited is based in Guntur, India.

VCIL listed in 1992 and is promoted by Subbarao, who started career as selling betel nut sachets and built ‘CRANE’ group of companies(Agriculture,Real Estate,Infrastructure,Finance and IT products)ore organization under ‘CRANE’.The company manufacturing plant is located at Guntur.

Brief History of promoter:

Who started his career with 100 rupees note as a beedi worker now created a CRANE empire worth more than 100 crores.

Promoters are very much ethical and investor friendly.He asked his son to work as a office boy in career starting unDer him to know the value of work.I had a lengthy chat with key management today they replied for all my questions patiently.

Please read more about the promoters @ below link.

www.deshvidesh.com/success2.htm

Financials

FYear Mar’13 Mar’14 H1’15

Sales 34.29 45.96 29.06

Interest 0.51 0.33 0.34

NetProfit 1.40 1.41 1.94

EPS 0.69 0.69 0.95

*Latest H1 results are surpassed by last year full results.Company expects the next few quarters will be in similar with more growth.

Good Things:

Company is a proud owner of established brands CRANE and DURGA.

Company’s CRANE betel(fruit masala) commands 85% market share in United Andhra,60% in karnataka and 40% in tamil nadu.

Company DURGA brand is most common one across andhrapradesh with out any competition.

The company’s subsidary Durga Dairy Products(DDL) has production capacity to manufacture 1500 tons of ghee per Anum.

Durga Dairy has entered into similar alliances with major retail players like Walmart,Reliance Retail, Trinetra, Gaint, Spencers, Foodworld, Subhiksha and Metro.

Company is DEBT free.

Company is regular dividend(5%) paying company for the last 4 years.

Promoters hold 74.9% with out any pledge.

Company products are recession proof.

The newly formed state AndhraPradesh capital is declared as Guntur, where the company holds 30 acres of land.

Financially company is very strong since there is no DEBT, 4 cr investment.

Power of their brands:

"Actually their brand DURGA is faked by local manufactures. Current year company started ads with celebrities and making buyers LOGO aware.Which is going to further add the top line and bottom line. Their expenses for this is 1.7 crore "

Subsidary Info:

Virat Crane Agri Tech Ltd:a world class fruit processing facility at Berhampur, Orissa, for exclusive manufacture of premium fruit concentrates/fruit pulps of Mango, Papaya, Tomato and Guava in aesthetic tetra packs. A full-fledged 100% Export Oriented Unit with technical association M/S Sasib Foods, Italy in 800 acres collaboration with Orissa GOVT.

Company currently trades at 15 with an estimated EPS of 2 , this one has all the credits to become a multibagger.

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Disclosure:

Invested and continue to hold …


(Subash Nayak) #2

What you forget to mention is that this business has ROE less than 6.5% in last 1/3/5/10 years.

To add to the awe, quarterly ebit/ebit margin fluctuates like crazy for same amount of sale, which seems crazy for a supposedly branded FMCG type of play.


(chaitu) #3

They acquired the DURGA brand when it is in loss making position, now they turned it to profitable position only 2 years back.

Initially the acquisition is eated their profits. Once it is profitable some of the local manufactures faked their brand, that is the reason for less profits in previous years.

Till last september there is milk shortage in Andhra and because of this reason their profits are consistent in all the quarters. Now ample supply of milk is there because of price hike in milk. But to overcome these situations company entered into agreement across Andhra Pradesh, Maharastra and Punjab with milk companies such as Heritage and others to avoid disruption in source supply and hedge against monthly price fluctuations.

When i asked the management about some level of inconsistency in the QTR results they had given these details and informed that the next 2 qtrs also they expect EPS to be over 50 paisa.

They also started selling in other cities in india such as bangalore/chennai apart from andhra,telangana,orissa .


(Basil) #4

Was looking at this. But some doubts. In this years annual report in management discussion and analysis,they say they are looking for new new in chewable products, ghee products and other products. But when it comes to segment reporting they say that there is only one segment -Ghee. So what all comes under this listed entity ?


(chaitu) #6

Previously they are in Tobacco and fruit masala products.

GOVT banned tobacco products and company profitability is hit because of this.

Thenpromoter sacrificed his stake in DURGA dairy and added it to Virat Crane freely for the sake of investors.

Currently they are in ghee and fruit masala(chewing product with betel nut)


(Chitresh Lunawat) #7

cahitu please give answers to the above asked questions. As i am also interested in this company… and having same doubts.


(chaitu) #8

Firstly don’t look at number 3 years back because during those days company is in completely different business i.e tobacco products/CRANE fruit masala

GOVT banned tobacco and Now company is in Dairy and Fruit masala products.

In the last 2 years company product DURGA is duped as MAA DURGA and DURGAA by local manufactures and affected their profitability.

Now they increased publicity to make buyer more aware with company logo and started their products in other states as well.Even the company dealer-ships are increased in the last 6 months w.r.to DURGA dairy products.


(Basil) #9

In this years annual report there is mention of only one segment Dairy segment ie Ghee. There is no mention of chewing products.


(Dhiraj Dave) #10

Chaitu,

Even in Beetalnut product, the margin are reasonably stable and free cashflow is very good. You can check Kothari Products Limited (Pan Parag Brand owner till 2006 or 2007). Past cashflow from operations does not suggest a strong brand business. Can you elaborate on what could be reason? Also sales before March 2011 was negligible. Was there any other company under which Beetalnut/Tobacco business was carried?


(Dhiraj Dave) #11

Some more concerns from FY14 Bsh:

  1. The other liablities include Rs 60 Lakhs of Stamp duty payable for last two years

  2. The company merged Ghee division and demerged Infrastructure business. No conistent business.

  3. While auditor report says that the company has been regular in payment of statutory dues, note 22 hasIntrest on TDS and IT of Rs 5 Lakhs for FY14 and Rs 23 Lakhs from FY13. Similarly paid ESI with interest of Rs 27,000/-.

  4. Last company borrow from Chit fund Rs 1.2 Cr and give Loan to group companies. Further there is loss of Chits of Rs 26 Lakhs in FY14 as well as FY13.

  5. On Gross block Rs 3.6 Cr as on MArch 31 2013, the company incurred repair expense of Rs 1.64 Cr during FY13 !!!

  6. Company has given Rs 22 Cr of Corporate guarantee for group companies .

  7. I would suggest if some one go through Capital infusion. Probably, in the scheme of merger of Ghee business, the promoter has got equity from same. Need to check that.

  8. On Non material expenditure (Salary and Other expenditure) of around Rs 5 Cr, Rs 90 Lakhs is appearing outstanding. This is very high according to me.

  9. APGST Penalty appearing in other Current liability in FY13 of Rs 23.84 Lakh now being classified as Long term liability as on March 31 2014.

Did not find worth analyzing and would say pass. Other member please, consider the points highlighted before taking any decision.

Discl: Not having any interest.


(Basil) #12

I think they have only ghee division under this. This quarters results press release confirms this.Thanks Dhiraj.

Disclosure - Not Invested.


(Varadharajan Ragunathan) #13

This seems to fit what sanjoy bhattacharya calls as a barsaati businessses - businesses that croak a little during monsoons - a bull run and then go silent.

Without a change in management, businesses like these continue to muddle along - for a long time, I never understood the importance of a vision and capable management.

If the business has been only taking 2 steps forward and one step back, what’s the assurance that it will deliver value from hereon ? I have understood that ticking boxes alone is not enough to deliver shareholder value - eg…, son made to work hard, sincere and honest - what one needs is a vision. For eg., I have seen arun jain of polaris at close quarters and met NRNM once - both are honest, hard working, very committed to the company they created but one ran it with a global vision and built a strong team of professionals. infosys is now 100 x of polaris

Unfortunately, with this bull run, we are getting into soggier and soggier cigar butts for one puff etal.

I’ve seen that without an actual change in culture and management, businesses seldom turn around !


(chaitu) #14

The brand value of DURGA ghee alone is a bless for company. Company top line/bottom line will see a growth of 50% and which is enough for re-rating and it is already in progress.

I mailed some questions to the management, will share the details once i receive the reply.


(Varadharajan Ragunathan) #15

Find it tough to believe - in the tobacco, gutkha business where RoE’s are upwards of 30 % +, if the company did 5-6 % over the years, either they were running it in efficiently or siphoning money.

The scene with ghee market these days is much different - organized players like hatsun,thirumala, parag are all hitting hard.

http://www.craneindia.net/vcil/vcilprofile.htm - the website is uninspiring and I would have corrected myself if historical RoE’s were anything to write about.

Look at this news article - durga diary was earlier indicted for adding animal bones into ghee.

http://indiatoday.intoday.in/story/There's+poison+in+the+ghee+you+consume/1/48111.html

The AR of 2009 does not talk about the above. Would like to know your views Chaitu ?

Is the auditor nagaraju & co auditing any other listed company ?

if durga is such a great brand, what’s been done in the last 9 years when competition if anything was less fierce ? The story is not holding up at all.

The company defaulted on APGST and has a penalty which is 10% of their EBTIDA - check the AR.

Compay has put in 20 % of their EBITDA into unrelated entities including film studio, pharma company etc.- no idea why.

Related party transactions - company has 3 x EBITDA outstanding with group companies without any reason assigned - agritech/infrastructure.

There are red flags all over the place - product quality issues - based on the report above, missed statutory dues, related party transactions, low dividend pay out (5%) . IMHO, the story does not hold up. Why would they grow 50% in an industry growing at 10 % - ghee is not a sun rise industry. The game in value added dairy products has moved onto paneer, ice cream, curd etc.

Please let me know if you have answers to the above.


(chaitu) #16

1). Don’t compare tobacco becuase of GOVT restrictions, business is closed. So no comments.

2.The household usage of DURGA GHEE is largest in Andhra and Telangana , being andhra company heritage is no way comparable with DURGA in ghee segment. The dealership network is almost doubled in the last 6 months. You can enquiry more on this to confirm, which i did, most of the house holds using this product.

3.Website overhaul i sent a mail already

4). The link you shared about DURGA is a different company in uttara pradesh and this is Andhra Pradesh. Please do the due diligence before putting the management in question about food quality. Durga Dairy (Gaziabad) is no way linked with this Durga Dairy(Andhra Pradesh) once again i am re-iterating.They have currently agreements with 4 dairy farms in chittor, khammam and warangal for CREAM collection.

5). It is foolishness to expect fraud of other companies in their AR

6). Already informed company dealership in more than doubled in last 6 months, which is enough to drive the sales.

7). About the investments already sent a mail to company, once i receive the details will share it here.


(Varadharajan Ragunathan) #17

Chaitu

IMHO, these arguments do not hold looking at historical performance - even in heydays, the RoE never exceeded 10 % - cost of capital. Tobacco is a wonderful business and I’ve never ever seen a tobacco business that generates less than 30 % RoE. If in the past, the company could not generate above cost of capital with a far far more lucrative business, why would they do so with a less lucrative business - ghee ? What governmental intereference existed in ghutka business ?

In any case, if your hypothesis is all true and Durga ghee is such a household brand name already, why are financials so weak thus far- it’s been nine years since the merger. Surely, if durga is such a household name, it would have delivered better than the Rs. 4 Cr. EBITDA it delivered in FY 13, if in our own assessment all households are using this product.

On top of it, statutory dues defaulted on/irregular in payments. What’s the rationale for this ?

And in this day and age, a company that cannot have a basic website, have an investor email ID and not have a clean record on statutory dues like GST/ESI etc. is fraught with risks. Add to it, the company has no CFO/no professional manager/second line to speak of as per AR, who signs off on the numbers.

I prefer not to get emotional by issuing a recommendation - but I would not bet my money on such a stock


(Rajeev Jawahar) #18

Hi Chaitu,

You must be a happy man indeed, with your prognosis playing out just the way you thought. Good conviction in the face of so much skepticism!

Where does the story go from here? An update from you would be very useful.

If betel nut / masala is part of Sales, then why has the Co. specifically mentioned in its “notes to accounts” that it is operating only in Dairy products? Any plans of the promoters to include other businesses into Virat to get a higher market cap?

I am invested in Virat. Was not aware of this thread. I would like to start a dialogue with the mgt. Can you help? For starters, can I have the Co.'s telephone numbers. The ones given on the BSE have changed.


(Chaitu) #19

@Rajeev,

Our boarders reactions are valid and i looked into these aspects positively, even their opinions also valid such as they depend only on GHEE products not anything on beetel nut that is managed by another group company.

But my conviction also correct that the brand value of Durga not understood by our boarders, which i stressed at least several times in the my replies. If we want to see every thing perfect in a small cap stock practically which is not possible, so i do leave it for time and if the company is reporting good numbers i will hold on else i will exit. I did some kind of scuttle butt ground work by inquiry in Andhra Pradesh and Telangana states and received positive reply for the same. Good to see company delivered things and ready to pay 1rs dividend this year.

recent plunge in milk rates flavored the company in a way reduction in prices of cream , raw material for GHEE production.

I reached management executive several times but i lost the contact number now. I will keep a eye on milk prices if they are moving up i will reduce my holding.


(Varadharajan Ragunathan) #20

@RajeevJ

it will be good if you can talk to the mgmt - i was also worried about statutory dues pending. A deep dive from someone like you will be helpful.


(Rajeev Jawahar) #21

Could any Valuepickr based in or around Guntur help in getting the contact numbers? The Co. registrars Sathguru Mgt. Consultants are based in Hyderabad. I suppose even they could help.