Bharat Rasayan Ltd

rating rationale for bharat group

http://www.careratings.com/upload/CompanyFiles/PR/Bharat%20Rasayan%20Limited-12-31-2018.pdf

Some key points noted:
Mr. R.P. Gupta, whole of time director of BRL and BRAL and director of BIL, has over 30 years of experience in the agrochemical industry

The group has a market leadership in many technical products including Clodinafop Propargyl (Herbicides), Lambda Cyhalothrin (Insecticides), Thiamethoxam (Insecticides) and Fipronil (Insecticides) among others for which the group is a preferred supplier**. Though there is a product concentration risk as the top 10 products of BRL accounts for around 56% of total net sales of BRL in FY18 (PY: 70%) and around 61% of net sales of BRL in H1FY19.** Further, the group has a large institutional customer base in the domestic market as well as in the international market with long standing relationship and low client concentration risk. In the international market, the group has strong presence in East Asia, South America, Europe and Middle East. Domestic sales account for around 85% of total combined gross sales of Bharat group in FY18 (85% in FY18) and around 90% in H1FY19. The group has a network of approximately 3,500 dealers and 30,000 distributors for supplies spread across the country and have 23 branches in all the operating states. The top 5 customers of the BRL excluding the group companies (BIL & BRAL) accounts for Rs. 223.33 crore of sales in FY18 (Rs. 117.98 crore of sales in FY17 and Rs. 73.81 crore of sales in FY16) which is around 35% of total sales of the company excluding sales to group companies (around 25% of total sales in FY17 and around 22% of total sales in FY16).

al segment of the group by around 36% from Rs. 465 crore in FY17 to Rs. 634 crore in FY18 as a result of good monsoon and increased realizations on back of continued good relationships with their existing clients and further addition of new customer base in both domestic as well as overseas markets. PBILDT margin of the group improved marginally from 19.72% in FY17 to 19.85% in FY18 with increased contribution of technical segment from 35% of total group sales to 42% of total group sales. During FY18, increased prices of crude oil has resulted in high prices of raw material but the company had successfully passed on the increased prices to its customers. Bharat Group is having a good customer base, with whom they are dealing with years and on a fixed gross margin basis. Therefore, increased in raw material doesn’t had a much impact on their profitability margins. PAT Margin of the group also improved from 9.88% in FY17 to 11.85% in FY18 with increase in scale of operations and same interest and depreciation expenses.

. Further, due to the seasonal demand for pesticides, the group is required to stack up variety of products as inventory in advance of the season resulting in high inventory holding period which is a common phenomenon across pesticide industry. This increases the inventory holding cost. Further, since pesticides are the last link in the agricultural operation, after having invested in seeds, fertilizers, etc., the farmers have little surplus money for purchasing pesticides. Therefore, providing credit is necessary to stimulate demand. Also, although BRL receives credit period of 90 days from its suppliers, however, the company makes early payments to its suppliers on account of early payment discount, resulting in average creditor period of around 24 days. Thus, due to such intrinsic nature of business, the group’s working capital requirement continues to remain high.

BRL is also importing raw materials for manufacturing of technical grade pesticides. Imports formed around 50% of total raw material requirements of BRL. So, the foreign exchange fluctuation risk is reduced partially on account of natural hedge

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Any reason why all agrochemicals shares tanked this year

Bharat Rasayan looks very interesting on the surface so I wanted to take a deeper look. The return ratios are spectacular for the sector the company is operating in, the promoter holding is around 75% and D/E is reasonable and P/E as well looks fair. All good so far. The next step was to look at financials, the top and bottomline have grown at a very good pace - topline around 15x and bottomline around 100x in 10 years. Very good again, am certain it looks good on a CAGR basis as well. Perhaps too good, perhaps the best, compared to peers like PI Industries, Dhanuka Agritech, Insecticides India, Rallis etc. which piqued my interest further and also kindled my suspicions on the possibility of cooked numbers.

So, to verify I set about the usual process of checking cash flow, receivables, cash conversion, dividend payout etc and this is what I found.

  1. 10 Yr FCF is -25 Cr. So in the long run, this company is not generating FCF. However in the last 5 years, there is positive FCF.

  1. Receivables are high at 345 Cr. Receivable days are following an uncomfortable trajectory from 50 days 5 years back to 77 days at present. At the same time Payable days have also deteriorated from 32 days to 15 days while inventory days are improving and overall cash conversion cycle is pretty poor, from 66 days to 102 days in the last 5 years.

  1. The D/E looks to be improving in the above but the E part of D/E is growing mostly through receivables, so I am not sure how we should perceive that.

  2. This company has phenomenal return ratios so I expected the company to be throwing out cash but this has not been the case when looking at dividends in the last 5 years. Dividend payout was a abysmal 2% between FY14 - FY16 and 0% in FY17 and FY18. Thats not a good sign

I was a bit ambivalent about the genuineness of the numbers because it was outperforming peers but the same was not coming out as dividend but being locked up in receivables, though the incremental PAT growth corresponds to the reinvestment (incremental capital employed) and reported return ratios.

I could have ended it there but wanted to look at a SHP analysis of the company.

These are the promoters holding the 75%.

Unfortunately, this company has not been dispatching SHP to BSE since Dec '15, so I couldn’t take the shortcut of analysing via phreakonomics.in. I had to do this manually by looking at the SHP on NSE (its a pain). Even there its not showing up when I want to look at recent public holders so I got the xml which was there that held the SHP and figured out who held how much from there.

The majority holders are

Ambaa Securities Pvt Limited - 4.94%
Ritesh Stock Broking Pvt Limited - 4.70%
Shiv Shankar Securities Pvt Limited - 1.92%

That did not give me a good feeling. Why are stock broking/trading firms holding 12% of the company? So overall it looks like hardly 10% is the floating stock in this company.

Even among the promoter holding, these three firms got my attention

Centum Finance - 2.38%
BRL Finlease - 2.69%
Weldon Fincap Pvt. Ltd - 3.70%

Long story short, Ravi Kumar Newatia is a director in Ambaa, Ritesh Stock Broking and Shiv Shankar and this Ravi Kumar Newatia looks to have been involved in money laundering/tax evasion in Mishka Trading & Finance - https://www.sebi.gov.in/sebi_data/attachdocs/1429273159211.pdf

This Ravi Kumar Newatia is also a director in Dynamic Portfolio Management which was also involved in the above scam of laundering/tax evasion and interestingly, this company shares address with Weldon Fincap which links this shady chap directly with the promoters.

Also, this Rajesh Gupta who is a promoter in Bharat Rasayan holds stake in Dynamic Portfolio Management Services https://phreakonomics.in/shareholding/index/DYNAMICP which again places strong links between promoters here and big holders classified as public to the money laundering/tax evasion unearthed by SEBI in Mishka. I think this is the same Rajesh Gupta who is the promoter of Bharat Rasayan because holdings of Rajesh Gupta have an overlap with the holdings of
Weldon Fincap Pvt Ltd
(Some trading companies, gems and jewellery companies) which is also a promoter entity in Bharat Rasayan. Again this is a mess of cross-holdings similar to the one I encountered in Byke. I was simply following a hunch looking at the numbers and price-action and to me few things here look very questionble. Your mileage may vary.

68 Likes

Interesting. … Can I company decide not to share SHP to BSE where it listed and continue to be listed there ?

Dividends were paid in FY 17 and FY18 too though the Payout Ratio may be low. You can check from Moneycontrol or Annual Report !
Screener or any websites mainly take data from BSE but i think they do not report data to BSE from some time and thus these issues. Sometime back , Screener was showing 0% Promoter Hold in Bharat Rasayan when i highlighted and they corrected it.

Also the company is spending required 2% as CSR.
Other things which were there in byke but not here are :

  1. Here , No dilution , No Bonus Shares or split while Byke/Vakrangee has issued Bonus for more liquidity and thus easy tradings. Though , in low float stock , better chances to trap. But most of the cases where fraud discovered has issued bonuses and splits.
  2. No Rating Agency has withdrawn due to “Issuer not Cooperating” while ICRA has issued such for Byke.

There may be cross Holdings as you mentioned but we need to look more into the distribution ship aspect. Whether these entities are frequently selling and buying or they are holding from long. No doubt , the Ravi Kumar Newatia has links with the promoters for sure and his involvement in Mishka Trading is a serious issue.

The numbers reported are surely the best in the industry. The receivables days are generally high in the industry. I was not happy with the Negative FCF and poor dividends and has avoided this story as such great numbers were difficult to digest but did not dig much.

The SHP sometimes gives us an interesting picture ! Looking for more such detailed findings from you for other companies.

Disc: No holdings in Past , No interest in present !

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I did some digging and sharing my findings below:

Ambaa Sec Pvt Ltd holds 4.94% of stake since Dec 2006. No changes since 2006. No data available before Dec 2006.

Ritesh Stock Broking holds 4.96% stake since March 2010 and still holding 4.75%

Shiv Shankar Securities holds 3.62% since June 2008 and still holds 1.92%.

At least on paper they look like “long-term” investors. Will be interesting to see shareholding pattern in FY19 AR because of recent fall.

Based on findings so far there is good chance that promoters have linkages with these brokerage firms. Promoter holding is already at 74.83%. Does it mean promoters are holding higher stake in the business through these Brokerage holdings in public category as they cannot have more than 75% holding as promoters? If that is the case, its good that promoters have more skin in the game. However, have to ensure that management’s integrity is unquestionable which requires more digging.

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Only perplexing fact remains in their ability to achieve what PI, Rallis and other Agro chemical companies have not been able to deliver, consistent growth but still none of the big investors or fund house are attracted to it.

It is quite odd how much employee productivity has improved at Bharat Rasayan.

Sales%20per%20employee

EBIT%20per%20employee

Sales per employee is now nearly 2x the average of the peers. EBIT per employee is also nearly 2x the average of the peers. This despite the average pay of Bharat Rasayan (7.9L) being less than the average pay of PI (12.8L) or Dhanuka (8.45L). They somehow manage to be LOT more effective which is suspicious.

Employee headcount has been falling. From FY15 to FY18, the employee strength fell from 546 to 443 or down 19%, even as sales expanded 81%. In contrast, the employee count increased for all of its peers during this period. Dhanuka’s employee strength rose by 7% from FY15 to FY18 while sales went up 23%. Insecticides’ employee strength rose by 12% from FY15 to FY18 while sales went up 20%. PI’s employee strength rose by 27% from FY15 to FY18 while sales went up 17%.

Food for thought. Something doesn’t feel right about their numbers

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@Prdnt_investor

Hi Rudra

Wanted to have your two cents on this recent “sleuthing” going on @ valuepickr, vis-a-vis SHP of Bharat Rasayan, its links to various “shady” brokerages.

YOUR view point will be of great help to me in this particular matter, since I have been invested in BR for over a year. That no major “big investor/s” are invested, or dividend pay out is less is irrelevant to me.

But management integrity being questioned makes me edgy.

Did a cursory glance since I am looking at this industry now. Points that stand out which need further checking as below (during the initial phase I look more for negatives or red flags, this does not mean that the company has no positives, please adjust for this bias of mine as of now) -

  1. Composition of the Board - Pankaj Gupta and Sujata Agarwal are the only two independent directors who have board seats in other companies. They are board members of Bharat Insecticides & B R Agrotech, hence practically there are no independent directors on board who have any incentive to consider minority shareholder interest. This by itself is not surprising since most promoter companies at this scale operate this way

  2. Related Party Transactions - Sales to Bharat Insecticides and BR Agrotech were 40 Cr and 24 Cr in FY2014, for FY2018 they were 128 Cr and 36 Cr.

This means between 2014 and 2018, of the total incremental sales of 420 Cr, 100 Cr was to related parties. This is not a small number though not high enough to qualify as a red flag by itself

  1. Total Employee Salary of 49 Cr in FY2018 of which 15 Cr was to Directors. For the remaining 430 odd employees the average salary works out to 6.8 lakh which is reasonable. Other companies at this scale may have higher number of employees but that is possibly due to a distribution led sales model. One needs to see what is the institutional business component here, Exports are 165 Cr and Related Party Sales are 160 Cr which do not call for a large sales force. This point I can evaluate only after I do a proper analysis hence will refrain from commenting on this.

  2. Large promoter holding at 75% and then some more through other entities/brokers. This can be seen as both a positive as well as negative - can imply skin in the game or can mean a promoter who believes in micro managing and controlling everything. If the second option is correct then such promoters may not care too much about any investor other than themselves. Then why list the company in the first place?

Based on whatever limited info I have seen over the past 2-3 days I would rate the quality of the board and governance standards as below average. At the same time I have invested in stories where the governance is on an equal footing, no company starts off with 100% clean governance in India.

Will need to understand the story better but this clearly is not a management that one can accord a high rating on governance. That does not mean that integrity is under question, those are two different things.

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I am just wondering/curious as to why so much of hullabaloo over Ambaa Securities/ Shiv Shankar securities holding in BR NOW, when they have been invested in BR since Dec 2006/March 2007( Earliest SHP data available on BR @BSE, and could have been even longer who knows).

@zygo23554

Didn’t read your post carefully, but could not digest the assumption that Promoters at BR might be micromanaging and thus not care for the retail investors. There is nothing wrong in micromanaging as long as one is doing it with efficiency, and as far as “caring” for retail investors, I wonder if such caring is done by ANY company, let alone BR.

Gruh was considered by me as the safest stock , one that you can buy and sleep on it like Rip Van Winkle, until the news broke about its “step daughter” like treatment of giving it away( the most treasured gem of HDFC ) to Bandhan. I wonder where the “caring” part of the management with impeccable integrity(as I do believe HDFC still holds the ‘trust’ of being truly dependable) for the retail investors vaporized into thin air! Caring for retail investors is an overrated term!

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I have been tracking the story for more than 3 yeas now and have attended 2 AGMs till date. Few friends have attended its AGM for more than 5 years now. Lemme answer the queries raised by you. I think there needs to be more work done regarding what does the company do and how does the industry work. First of all lets talk about what exactly does the companies in the agrochemical sector mentioned by you do:

  • Bharat Rasayan (BR): Bharat Rasayan is a pure play technical manufacturer. Technicals are like what APIs are in pharma. They are the active component of any formulation which are in turn sprayed on crops. Its a pure play B2B company. It supplies to formulation players and has customers like Bayer, Nissan, Sumitomo, Rallis, Indofil etc as its customers. Its a pretty well diversified company with more than 20 products and no product and customer contributing more than 20% of its sales. In some of the intermediates and technicals it manufacturers like meta phenoxy benzaldihyde (MPB), as per market reports, it has a significant market share in India. It manufactures generic technicals and has also getting some contracts for manufacturing of innovator molecules.

  • PI Industries: PI Industries is into formulations and also does CRAMS for innovators. It has it own branded products like Nominee Gold and Oshin under its Indian formulation portfolio. It earlier used to import technicals for its formulation basket portfolio but is not backward integrating for manufacturing technicals for its formulation portfolio also. Its a mix of B2C and B2B capabilities.

  • Dhanuka Agritech: Its a pure play formulation player and doesnt manufacture its technicals. Its a branded player and has extensive distribution reach. Its a B2C company.

  • Rallis India: Rallis India is primarily a formulation player with some technical capabilities which they havent been able to ramp up and also manufactures seeds through Metahelix. Its a pure play B2C company and is also trying to scale up in technical manufacturing.

  • Insecticide India: Insecticide India is primarily into formulations and has some technical capabilities. Its primarily a B2C company.

The direct comparison of BR is Astec Lifesciences (acquired by Godrej Agrovet now) which is a pure play technical manufacturer and a B2B company. There is a lot of difference between technical manufacturer and a formulation player. Technical manufacturer requires chemistry skills and established relationship with clients while formulation manufacturer requires tie up with innovators (for launching innovator molecules in India), distribution network and brand.

Now, I would like to answer you queries in a point wise manner as mentioned by you:

  1. In most of the growing manufacturing companies, it is difficult to generate FCF if one is growing and needs capital for both expanding capacities as well as for working capital requirements. For Rasayan, the turning point came when the company put up a new manufacturing plant at Dahej (15,000 MT) in 2012 which had 3 times the capacity of its first plant in Rohtak (5,000 MT). From there on, the revenues increased from 90 - 100 crore in FY11 to more than 900 crore on trailing 12 month basis currently. Its almost 10 times increase in revenue. Let us look at the increase in capex of the company from Fy12 - FY18:

image

Lets look at the source of the funds for these capex, it was funded through debt, internal accruals and unsecured loans from promoters (at one point of time on account of big capex requirements, promoters had infused funds to fund a portion of Dahej capex and these loans still remain in the company). Company has never diluted a single share in its history post IPO unlike some of the peers which have. Will answer the second part on working capital in my next point.

  1. Increasing receivable days: Let us first look at the receivable days of some of the technical and formulation players over the period FY15 - FY18 in the table below:

Overall for most of the formulation players, receivable days have increased in past 2 - 3 years on account of distress in rural economy. In case of Astec, receivables days have remained pretty high in the range of 120 - 140 days over the past 4 years. In case of BR, the absolute debtor amount seems to have increased primarily because its sales have doubled and even its debtor days have increased. The major reason for increasing debtor days is given below:

  • Increase in debtor days of its key customers ie formulation players

  • The whole story about BR revolves around structural shift from China to India for manufacturing of technicals due to increased costs involved with following environmental norms and large MNCs diversifying their sourcing base to de-risk a bit from China. China used to give credit period of 6 months to its customers. BR had to increase its debtor days to get contracts from some of these large customers which its balance sheet could afford. However, during the AGM interaction with investors, RP Gupta (the promoter) highlighted that there will not be any loss from these MNC customers. Also, the payable days have reduced since they get cash discount for upfront payment. As per some scuttlebutt from their suppliers, they never delay their payments and even give payments on the day of delivery.

Now, let us look at the impact of these increasing debtors on the debt of the company as highlighted in the table below:

Company’s debt/equity despite increase in working capital requirements has infact reduced from 2.10 times as on March, 2013 (due to Dahej expansion) to 0.43 times as on March 31, 2018. In fact, out of the total debt of Rs.128.34, around Rs.70 crore is from promoters. Off course, they get 9% interest on these unsecured loan but they had infused most of these loans when the company needed it most - during Dahej expansion.

  1. Receivables part have answered in the above question.

  2. Dividend payout mentioned by you for FY17 and FY18 is incorrect. They paid dividend of Rs.1.50 per share during FY17 and FY18 each. On the low dividend payout, the management said that since they are in expansion mode and are seeing good growth opportunities they are paying low dividend payout (imagine the promoters holding 90% share directly indirectly taking low dividend - the maximum impact will be on them as compared to minority shareholders). On expansion front, as mentioned in my AGM notes that they are expanding capacity in Dahej for technicals and intermediates as well as for backward integration with total cost of Rs.80 - 100 crore (to be spent in two phases) and are doing a greenfield expansion at Sayakha, Gujarat for which they will decide funding soon.

  3. On the issue of shareholding, its anybody’s guess that they hold more than 75% stake in the company. However, it is very important to look at promoter’s intentions. **Promoters havent sold a single share since its listing despite the price rocketing 80 times since FY10 - current year (Rs.80 - Rs.8000). The company meets investors only during AGM and doesnt entertain either the large or institutional investor in between. The promoters come across as focused entrepreneurs and are not much interested in stock markets. May be thats the reasons people speculate and float lot of stories about them. Further, if one gets the channel checks done from industry insiders in agrochemical industry whether its their suppliers or customers, one would get pretty good feedback about them.
    (Disclosure: Invested)

71 Likes

I am saying the exact same thing - I have invested in such companies and frankly more often than not things have worked out. For the record I like companies where the promoter holding is > 50% and the promoter is in charge of managing operations as well. When such a promoter manages the show well, chances of wealth generation are much higher than that in a professionally managed company. The bulk of my money has been made by investing in such stories and not in companies which have bullet proof corporate governance policies.

However, that the promoters are micro managing is a possibility one needs to consider, you can decide either way based on your world view but it needs to be considered is all I am saying. One single factor never makes or breaks an investment thesis, by all means do a well rounded analysis, weigh all possibilities and then decide.

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Well, maybe my interpretation was not what you meant to write. Anyways, I reckon that we are in the same boat then.

Disc:- Invested in BR for over a year and 2nd largest hldng in PF.

Thanks. Hope it clarifies lot of issues that other members raised.

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Yes. It did. For me , the worst nightmare as an investor is , if in any way, the management’s integrity is questioned. Of all the 15 points that Mr.Fisher has written about in ,“What to Buy”, the last point has stuck deep in my mind, which even he rates an usually high score in regard to all the rest. Other things being questioned I wasn’t jittery about, and you reaffirmed that faith with your response.But, all of a sudden this “noise” about Top Public holders, who are invested way back since 2006 was giving me a headache. But all is well now. So thanks.

Great post @ankitgupta. Appreciate the hard work you have put through to compile the detailed post.

Couple of things, high receivables needs to be always looked into from perspective of industry dynamics and quality of receivables. BR being a technical vendor would always feel the squeeze from large MNC buyers but at the same time there would be very little doubt on their payment abilities. Thus high receivables always need to be validated from who the payers are - recovering large sum from few global MNCs is different from large B2C receivables.

The AGM notes gives some insights into company’s conscious effort on targeting difficult and complex chemistry on the technical side. This is a large entry barrier and getting trust and traction from large B2B buyers would take many years as seen in other industries too.

People raise all kinds of doubts as a late reaction to stock price crash, while these should come before you make the investment decision - not as an aftermath.

Large drawdowns are part of any multi year stock journey and is inevitable. More important is to understand structural shifts in the industry and effective outcomes for all players.

Discl : still largest position in pf, trimmed a bit during exuberance phase, no addition in last 2 years

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One of the member @Divyachawla has done extensive work covering most of the Agro Companies. Though many would have seen it , still sharing for other members.
https://drive.google.com/file/d/1aJNIsxXg3IoENdrtVA9EYQSVH9vsCiEJ/view

@ankitgupta has answered most of the concerns regarding Poor FCF , High receivables and high Debtor Days.

Rahul Kumar Newatia is a director in lot of companies like Ambaa , Ritesh , Dynamic Portfolio.
The Dynamic Portfolio shares the same address with Weldon Fincap which is a promoter entity.
Weldon Fincap has a director Rajesh Gupta who is owner of RSND Group.
This Rajesh Gupta of RSND Group ( https://www.freshfalsabzi.com/about_rsnd ) is different than the One Rajesh Gupta who is a director in Bharat Rasayan.
If one looks a Bharat Rasayan Zauba and check Rajesh Gupta Other Directorship , one may find that he is director only in Bharat Rasayan. If one looks at Weldon Zauba , The Rajesh Gupta present there is director in lot of companies but not Bharat Rasayan.
So there are two persons with same names possibly.

The presence of Weldon Fincap as a promoter in Bharat Rasayan and it’s address matching with Dynamic Portfolio where Ravi Kumar Newatia accused in Mishka Trading is present , remains an issue. One thing can be said definitely that Ravi Kumar Newatia and promoters are connected.

Ravi Newatia with his Holdings in Bharat Rasayan via Ambaa , Shiv Shankar and Ritesh Broking which is classified as Public may have easier access to insider information. Regarding no stake sale by these entities , it is a possibility that these entities usually trade in Shares of the company and maintain the usual holdings before declaration of Share Holding Pattern every quarter. Only a Possibility ?

The entire thing depends on the promoter’s integrity.
So far , no dilutions , no selling by promoters and nothing looks wrong.
For how long , difficult to say…? Though these risks are associated with all of the companies.
Those who have met management can have more insights and thus more conviction.

Anyone having idea of other clients of the Auditors

  • M/S. R. D. GARG & CO.: Statutory
  • M/S. M. K. SINGHAL & CO : Cost Accountant

Disc: I neither hold any shares of the company nor i have any interest. I prefer companies with good dividends , Positive FCF for last 10 years, No or less related Party sales and thus has not made any investments when i looked at it sometimes back as it did not meet my checklists. Currently , the Ravi Newatia factor reduced the interest more.

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A business is ultimately about cash flows accruable to shareholders. A business that exists primarily to service the lenders and/or vendors isn’t such a great business.

In case of Bharat Rasayan, if you ignore the capex and just use the cash flow from operations (an aggressive approach since we are ignoring even maintenance capex), the max CFO has been 60 cr in FY15. At current EV of nearly 1800 cr, that translates to 30x EV/CFO multiple. If we actually use the FY18 numbers, the CFO was only 29 cr. Using that EV/CFO multiple is nearly 60x. Either ways, it is very expensive.

Let’s take this one step further. Let’s ignore even WC, not just capex (i.e. “WC and capex being used to grow the biz”). If we adjust CFO up for WC changes, we get max CFO at 116 cr in FY18. Using that number, the EV/Adj CFO multiple is 16x. And mind you it is usually a bad idea to ignore WC changes when doing valuation as that WC is unlikely to be released unless the company is in liquidation.

So here we have a company that under fairly aggressive valuation assumptions is still not attractively priced. PAT is meaningless if it doesn’t eventually translate to cash flow for shareholders. This business with its optical 40% ROCE actually generates less than 10% CFROI most of the time. A PnL focused investor may ignore this but anybody paying attention to BS and CF will have a hard time valuing it as aggressively as it currently is being valued.

The whole argument of no dilution is moot if the business is mostly run for lenders and vendors. How will the cash come to shareholders?

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