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Ganesh Benzoplast - Cash rich chemical storage/tank king

CMD interview in money control:


Extracts are interview:
Liquid Storage business is a stable business
FY18 9M EBITA of Rs.34 Crores
Expected EBITA of liquid storage business FY18 and FY19 is around 45 crores
Liquid storge capacity is under utilized.Hence, There is a scope for further EBITA improvement.

Chemical is strong business. During quarter, Positive EBITA is reported.
Company is in the process of de-merging the chemical business. we expect an announcement soon. Management is very positive about the chemical business.

Yearly interest cost is around 8 Crores. debt has refinanced in Mar’17. Outstanding debt is around 50-60 crores.

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Any1 has any update on the demerger…The CMD said that by 31st March, they will get the approval from shareholders, but no news on that untill now.

I attended the AGM, here are my notes

  1. In FY18, growth has come due to capex in JNPT and better utilization and margin improvement in chemical division, renegotiated the loans and brought down the interest cost

  2. Demerger – valuation process is taking lot of time as we are still under BIFR technically although we turned net worth positive. Valuation has to be performed on 3-4 parameters
    and after that an independent CA has to certify this valuation. This whole process may take 4 weeks and then we will come out with draft scheme. we are also taking creditors on board so that
    we wont get any surprises at later stage. My assumption is they will face hurdles at every stage like getting NOC from SEBI, BSE, Creditors, NCLT, ROC. however now that we are net worth positive
    it will help the process a lot. We should take atleast another 1 year before actual listing could happen

  3. We have already applied to NCLT to get ourselves out of BIFR. Will take time …

  4. LPG Capex – 175-200 cr. getting loan from bankers would be a challenge in view of the current situation in the market and also we have the stigma of BIFR. We have internal funds to
    start the project, but we dont want to go ahead unless we do financial clouser happens. we are talking to private lenders too. roughly 50:50 would be the ratio. targetting the financial closure
    by Mar 2019. 2 years construction time and 1 year for rampup

  5. We did a small capex in Cochi. now the capacity is increased from 30000 to 48000 KL. in fy19 will add 4 cr to top line

  6. There is no land in JNPT to expand.

  7. Goa LST – utilization is only 50% as there are only 4 chemicals being imported here. So we peaked out at JNPT, Goa, Cochin. we have land constraints in Cochi beyond the current capex

  8. Rentals – JNPT 200-250 rs/ton, Goa 100-150, Cochi 100 rs. LPG would be 7x JNPT

  9. LPG – Will double the current sales and also double the profitability. so 4x the EBIT

  10. Chemical division – no plan for capital deployment. after demerger we can look at strategic investors to expand. we are alraeady approached by 2 strategic investors

  11. Rishi, Amar will run the infra business post demerger.

  12. Growth comes from new capacity , higher rentals , begtter product mix.

My Observations

  1. We are in steady state now, not much growth from existing levels apart from 4 cr additional sales from Cochi

  2. Getting approvals for demerger is the key. I would rather buy at higher price after record date is announced

  3. Financial closure of LPG Capex would another key montorable. Since demerger and capex are going together we might expect more delays as they are related

  4. There are only 2-3 investors at the AGM.

Disc : Bought tracking qty for AGM purpose

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Some positives:
Promoters released pledged shares partially.
Company started paying taxes from this quarter.

The Co.’s financials seem to be getting better ever since it came under the BIFR sanctioned scheme in 2015 with both Sales & Profits improving with each passing year.

Going by the recent announcements on the exchanges, the pledges shares have also come down by 25,00,000 shares.

The logistics business is high margin & the Co. operates from three Ports. It has gradually been increasing its storage capacities & with a vastly improved balance sheet, it looks ready to becoming a bigger player in the business.

From here on it will not be possible for Ganesh Benzoplast to grow in terms of profit. They are operating at full capacity in Liquid Storage and could not do much to make chemical business more profitable. At some time in past i heard or read somewhere about selling their chemical manufacturing business, it seems they could not find buyer. The next phase of growth would only come for LNG terminal business and that will take a long time to become operational. No new development has been communicated by company so far.

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I had attended the AGM of the Co. sometime back and came back with a feeling that the Co. was poised to grow rapidly from its current level of operations. The Co. has a somewhat chequered history & its young Chairman Rishi Pilani, who has been navigating the Co. through some pretty rough weather in the past, seems determined to change all that! I found him to be both upright and forthcoming. He was quite open to interacting with the shareholders & addressing their queries.

The Co. has two divisions. The logistics division is a high margin business wherein the Co. has storage facilities on various Indian ports to handle liquid cargo like Petro products, chemicals, edible oils etc. It’s current capacity is about 3,00,000 KL in Nhava Sheva, Cochin & Goa. The Nhava Shiva facility in Navi Mumbai (JNPT) which holds about 90% capacity is where all the action is. The port traffic here is heavy leading to high demand for storage facilities. The Chairman said that the Co. was actively considering expanding capacity & would share info as & when it had something concrete to report. He however mentioned that the Co. was in any case looking to further increase existing capacity by increasing the height of the tanks where ever possible.

A word about the business. The demand is so strong that the lessees / tenants themselves are willing to fund capacity increase, repayable against the future rentals! The last phase of expansion at JNPT was so funded. Being a high margin business, the tanks pay for themselves in about 4-5 years. Thereafter, it becomes an annuity business to perpetuity!

The other business is chemicals. This business requires large working capital. I guess having burnt their fingers in the past, the mgt. is perhaps cautious about increasing debt. The Co. is in the process of de-merging the two businesses as there are no synergies between them. The Chairman was hopeful of de-merger by the end of the financial year & was also considering a slump sale if it took longer. My own take is that post the de-merger, the Co. would induct a strategic investor (Why else would it go through the whole de-merger process?)

Going through the filings on the BSE, it appears that the Co. has re-fianaced its earlier loans recently. Such are the cash flows of the business that about half of its current bank loans of about 48 crs, will be repaid by September 2020

Disc: Invested.

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Any update on 76.8% of promoters’ holding pledged?

The pledged Promoter holding is down from 76.8% to 65.45% as of December 2019. Further some more shares have been released from pledge thereafter. With the company’s debt expected to reduce from 48 crs to about half of that by September 2020, the Promoter pledging is also expected to come down drastically by then.

The mgt. has clarified in one of the filings to the exchanges that the shares pledged by the Promoters have been for the business loans taken by the Co. & not for any personal borrowing.

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Two years back management was planning separation of LST business with chemical business.Any idea why management stepped back on this.

Companies like Ganesh Benzoplast are likely to be less impacted by the current lock down than regular manufacturing ones as its business model is more annuity type. Their tank farms are leased out & the Co. manages the cargo for the lessees. The lease rentals are insignificant for the lessees when compared to the value of the goods stored in the tanks, so the lease rent even during slowdowns shouldn’t hurt so much. We will however have to wait for the Q4 results to verify this.

The chemical plants have however closed down due to the lock down, just when their fortunes were looking to change for the better, but as the chemical division was hardly contributing to the bottom line, it should not impact the numbers meaningfully.

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I agree, Just when we thought the chemical division was getting tilted towards positive growth, Covid has temporarily delayed the growth process.
negative operating working capital, strong inventory turnover (compared to fy17), Improving ROCE and reducing debt levels make it an exciting company to hold on to.
Disc: Invested

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The stock is seeing hectic accumulation in the last few days. As mentioned earlier, the Covid-19 is unlikely to have any negative impact on the financials. On the contrary, it is quite likely to bolster the numbers as port storage capacity is limited & logically the storage demand is more than likely to go up during such times.

With the Co. continuing to pare debt, the already high return ratios are going to get more interesting going forward.

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But sir what is the status of Goa gas terminal? If we go by local Goan media it has created some Naphtha storage controversy and locals were protesting even it got some political angle in it.
No update or info on capacity addition in LST business and no update on demerger strategy.
If any info or link please share.

For the moment I suggest ignore Goa as it is hardly contributing to the bottom line. Lets further assume that the de-merger also doesn’t come about anytime soon. The Company is generating cash profits of about 50 crores annually at its current level of operations & if the mgt. so desires, it can easily become debt free in the next 12-18 months. The nature of the business is such that the earnings visibility is not an issue. Going by the high return ratios, the high operating margins in the business the valuations look misplaced. This is the core of the investment thesis.

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Sir I agree with you but how to get the revenue guidance for next few Quarters? As per my readings from AR and some earli reports JNPT is running at almost full capacity and Kochi port does not have that volume and earnings. I m very much convinced with its low valuation and good cash but future lookout is not looking promising. Management is also not distributing cash. At one point and I think it is near revenue will be stagnant or low growth. Increase in rental income per year is also not guided by Mnagement. As u said they may increase hight of tanks but I couldn’t find any reference to ur findings. Could u please share that info here. Can we assume that the huge change in fixed asset from Fy18 to Fy19 has some hints. Fy 18 fixed asset purchased 19 Crore Fy 19 fixed asset purchased 28 crore ( source screener.in).

Disc: No holding

As per the Limited Review September 2019 results , company has not repaid borrowings instead they have taken fresh borrowings during the half year ended Setpember 2019 as reflected in statement of Cash flow.

Attached ROC charge report, which clarifies that Ganesh Benzoplast has created a charge on amount of Rs.53 cr from Union Bank of Indian on 28th June 2019 .

Further ,Company has released charge on the borrowings taken from Oriental Bank of Commerce in September 2019 on Rs.45 cr (balance as on 31.03.19 - 23.4 cr).

Borrowings of Rs.30 cr (53-23) should be used for further expansion .Eager to watch coming quarterly results which should clarify the usage of funds.

There is Capital work in Progress of 15.4 cr as on Sept 2019.

New Borrowings might be one of the major reason for promoters pledge being reduced from Sept 2019 quarter (76.8%) to December 2019 quarter (65.45%).
Ministry Of Corporate Affairs - MCA Services.pdf (91.6 KB)

**One Major Concern of GBL seems to be getting resolved slowly and gradually: **
**High amount of contingent liability as compared to net worth of 112 cr as on 31.03.2019 **

Contingent Liability as on 31.03.2019 as per Annual Report
Particulars Amt (in Millions)
1 Claims by different parties 134.51
2 M/s Avron Chemical Private Limited 90.06
2 Morgan Securities and Credit Pvt Ltd 15
4 The State Trading Corporation Ltd (STC) 242.64
5 Marmugao Port Trust (MPT) in Arbitration, Amt Indeteminate
6 Income Tax demand 40.97
Total 523.18

1.Avron Chemical has been settled at Rs.28.50 million and impact of the same has been taken in December 2019.

2.State Trading Corporation has been settled at Rs.21.88 millions vide order NCL order dated 13th Feb 2020. Order attached herewith. The impact of the same can be seen in Quarter March 2020 results mostly…CP 1975 OF 2018 STC vs. GBL NCLT ON 13.02.2020 DISPOSED FINAL ORDER.pdf (444.5 KB)

Contingent Liability of Rs.332.7 million has been settled at 50.38 millions in the FY 2019-20.

Contingent Liability was the major reason why the Demerger was not getting kicked off.Complaint letter-from-BSE_4.7.2019.pdf (122.1 KB)

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Well done @Pranshinv! Some great bit of scuttle butt!!

Contingent liability of Rs. 24.26 Crs pertaining to STC settled at Rs. 2.18 Crs.!

This is extremely relevant as contingent liabilities which were largely a legacy issue were affecting the valuations of the stock. With this settlement, the contingent liabilities will stand reduced to under 20 crs which given the scale of the company’s operations & cash flows is very much in the comfort zone.

The other factor affecting valuations have been the issue of pledged shares. This too should be resolved in the coming months. We already know that Covid-19 has had a very positive impact on the Co.'s numbers & there is a strong buzz that the Co. has already prepaid the term loan of Rs. 20 crs that was due to be paid by September end 2020, leaving only the other term loan of Rs. 28 crs due. This too stands reduced to about Rs. 20 Crs given the regular installment payments. At this rate the Co. should soon become debt free in the next 12 months or so should it decide to. That will take care of the issue of share pledging.

The stock is available at an earnings multiple of about 6 times trailing EPS. Given the predictability of earnings, the high operating margins & the still higher return rations, given the loan repayment, we could see a growth in both the EPS as well as the earnings multiple going forward.

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