Couple of points to as per my understanding so far please correct me if I am missing out anything or misinterpret something ….
- Company is mainly focused into Maize Processing and Soya Oil Extract . Main raw material are Maize and Soya so working capital need spike up during the time of inventory and ease up rest of the time in the year.
- Commodity cycle and MSP for Maize is a key concern but GAEL is able to procure corn at 50 paisa to Rs 1 cheaper than competitor which is a good 4-6% advantage on typical corn procurement cost of Rs 12-16 (Rs 14 MSP).
- Capacity utilization is around 90% but Agro Processing (Soya Extraxt) is only 30% so no more capital is needed in this front.
- Currently they are setting up forth maize processing plant in Calisgaon with 30 acres for greenfield leaving out rest 70 acres land for brownfield expansion in Phase II. Both phase will add 1000 ton/day capacity against current capacity of 1950 ton/day. Total capital outlay 325cr which will be funded through internal accrual and projected sales revenue is of 700-750cr. Phase I will be operational on Oct17 and Phase II will be operational on H1FY19. It also has bought land at Uttaranchal to setup 5th plant with 750 ton/day capacity.
- Mohit is completely out of the strategic decision due to his difference from Manish and now Manish will have the entire control.
- Manish track record is very good since last 10 years and the high Salary he is taking is high but due to 6% of sales profit he is drawing from his distribution channel as commission which is directly linked to the profitability of the company. Just like his father who is getting 5% of sales profit. I am not sure if we can consider this as a red flag or not but since the company is having a very less long term debt of 15cr so I feel this is somewhat justified unless we have seen they are taking debt due for capacity expansion.
- Dinesh Shah has joined then as CFO whose track record with Meghamani Organics was excellent , so we can expect GAEL will be margin attractive going forward since focused will be on specialty chemicals like HFCS [High Fructose Corn Syrup ] which is a very good supplement for Sugar and also cost effective.
- Current quarter slowdown is due to mainly GST impact and might be carried to the next quarter as well but then onwards it will going to have positive impact on this company. Another factor comes in as inventory loss due to lower price of maize. The second factor is a definite concern I am not sure how the company going to address it.
- Current trigger in my opinion is HMCS, HFCS, Sorbitol, Malto Dextrin, Dextrose Anhydrous specialty chemical segments since there is a trend in the world to reduce dependency on sugar and move on to other avenues where China is a frontrunner since 2004 but in Indian the prospect is still not clear but with the growing health and environmental awareness it is expected that sooner or later India will move into those products. Having said that the export option is still wide open for this company due to cheaper cost as a complementary sweetener.
- Valuation is not very less mainly due to it’s B2B legacy business but if we consider them in the specialty chemical segment with strong distribution channel and good export option then we can say this is a very good value bargain at this point of time. Correct me if I am wrong.
- Not having any idea about their Textile and Power segment.
I am looking forward if someone can give a quantifiable number on their sales projection as per the management from the Maize Processing segment is 750cr from new plant along with the existing 1400cr and from the exiting Agro Processing segment can be scaled up to 3 time from the current 1,800cr.