Hi Ananth,
Thanks for initiating a proper dissection of the forex liabilities of Astral, and the possible implications. Thanks also to DC Joseph and others for bringing this aspect into focus - what is the overhang on the stock? How severe is its impact likely to be??
1). As I understand it, almost all of the losses must be stemming from ECB Loan. We need to find out the exact quantum of ECB Loan.Debt is 53 Cr as on 30 Sep.
2). The company follows AS-30 accounting norms. So the Forex Loan and Forex outgo as Interest needs to be repriced and accounted for in P&L latest by the end of the accounting period i.e. 31st Marh 2012. The company has chosen to do it at that time.
3). As per AS-30, the company also has the flexibility to capitalise the same (if it is for setting up a plant which is underway) along with the Interest outgo, as long as the outgo does not exceed prevailing Indian market interest rates.
4). Also as far as I understand, the whole loan has to be repriced (even when the repayment is 4 years away) at any point of time. Astral has indicated the M2M as 8.85 Cr as on 30 Sep. (Rupee to US$ was 49, 50)
5). Since then this has moved to 52! We need to know how many tranches amount has been drawn, when and at what levels. How much has been drawn in Oct and November? and any plans of drawing further?
6). A rough back of the envelope calculation might show us this. A Rs 4 differential accounted for ~9 cr, so another Rs2 differential (52 to US$)will account for another ~4.5 Cr.
7). If Rs does not depreciate further and stays at ~52 to US$ for next 6 months, then Astral may have to account for ~13-15 cr in P&L in Q4. and a degrowth in FY12 is possible.
This is subject to following:
a) Interest outgo is higher than 12-15% Corp borrowing rates prevailing now. Is that likely? we need to investihgate, ask other companies for corroboration
b) Rupee stays where its is and does not swing more either way
So tasks before ValuePickr team:
1). Get exact Loan and tranche withdrawl details upto November from Astral
2). Get AS-30 accounting facts on ECB loan accounting - CAs, step up please
3). Get this corroborated from the experience of other Corporates
Get cracking guys, quite critical to get this right, right:) We must be on top of scenario plays - taking the view that it is impossible to predict, is the easier option out, and leads to unpreparedness (read disaster, most times)!
At the same time, in my opinion the business fundamentals remain strong, competitive position is getting stronger both in CPVC and PVC. The company has taken small price hikes in both quarters (not enough to sustain margin pressures). This is a temporary blip in a way as the losses are notional and will get evened out over the next 2-3 years (unless you are a Rupee pessimist for 4 years).
Once we understand the situation, this is something to take advantage of! Not the other way round:)
Disc: I am not an expert in matters discussed above. My views are biased. I hold significant long term positions in the stock and have direct vested interests. Please do your own due diligence and seek help of professionals for your investing decisions.
