Some data points wrt to capacity and actual production. Lack of growth visibilty remains a overhang on this stock. Trying to kill my own idea 
Comments invited.
Haldyn.xls (17.5 KB)
Conclusion: -
Growth can be achieved either by expanding capacity or through change in product mix. Right now there is no clarity on either front. Hence, wait until clarity emerges.
Latest Update
The company has sold around 452 million bottles during 2010-11 (refers to financial year, April 1 to March 31), operating at close to full capacity of 300 tonnes per day. More than 85 per cent of total revenues are derived from the liquor and brewery industry. HGLas management aims to diversify its customer base going forward by increasing its share of customers in the food and beverage segment. It has initiated value-added activity for few customers in the beverage segment by setting up a printing line. The company aims to increase its current capacities to 380 tonnes per day during the last quarter of 2012 with an expected outlay of Rs.200 million which is expected to be funded primarily by internal accruals.
**
**
Source: Crisil ratings
**http://www.crisil.com/Ratings/RatingList/RatingDocs/HaldynGlassLtd_15Dec11.htm
**
**
**
Not sure if Sandeep met the CFO- he posted about, who seems to be implicated in a fraud to the tune of 16 crores.
Good results, large fraud uncovered…
Let’s see how this one plays out…
)- Pradeep
The results have been good; the dividend announced is 0.75 INR/ share, which makes the dividend yield equal to 4.7% at current market price of 16 per share.
Haldyn has mentioned that the fraud of 16 cr has been provided for in the financial statements. But I can’t see any item in the financials about this fraud.
“During the year, certain instances of fraud on the Company by a few senior employees in collusion with others had come to the notice of the Management where the estimatemisappropriation aggregates to Rs.1628.27 lakhs. The Company has provided for this amount in the financial statements and has initiated appropriate legal action.”
The only consolation here is the possibility that profits would have been 16 cr more without the fraud… That is if you believe the numbers anymore…
75% of its user base is the alcohol industry… An industry which is unscrupulous…
)- Pradeep
Could it be that they have adjusted the loss to the reserves?
Pradeep: The profits can’t be 16 cr more. Already, this has been the best year for Haldyn.
- The EBITDA margins are 25.8%, while the average for last 5 years = 23.8%
- The PAT margins are 13.7%, while the average for the last 5 years = 9.4%.
Add 16 cr more to EBITDA or PAT, and thenumberswould look ridiculous.
**
**
Ayush: They haven’t made the adjustment in reserves.
PAT is 24.3 cr. The dividend outgo would be 4.6 cr. The remaining 19.6 cr is added to reserves.
We will know the details only when the AR comes.
No one has said the time period over which this occurred, could be 5 -10 years…maybe a bit of skimming took place every year totaling 16cr…I am surprised Mr Market did not punish…
If one takes aside the fraud and its implications, this one looks ridiculously cheap.
FY 12 EPS 4.5 So on PE basis it quotes at less than 4.
Market cap around 92 crores and net debt of around 15 crores(long term debt 4 cr+ short term debt 12.5 cr minus cash in hand 2 crores.) So enterprise value comes to 107 crores.
EBIDTA for fy 12 around 45 crores. So on ev/ebidta basis also it is at 2.37 times.
And all this in a company which has grown its sales three fold and net profits fourfold in last six years.
Question mark as should be the first question for any Indian investor is how ethical is the promoter n how good is the growth?how does the co fares on both these parameters?
Hitesh bhai,
I agree on the valuations part but this fraud highlights a major risk also. As the fraud was recently noticed - 1. where has the impact been adjusted? (in p/l or reserves?) 2. what was the nature of fraud 3. Could the fraud figure inc going forward?
Ayush
yes fraud has been the big overhang on this one and probably the only reason holding back the stock price.
but i guess as typically happens, this overhang also will be a temporary phenomenon and once the stock price zooms up, the relevance of these things will reduce dramatically.
on charts looks ready to break from rounding bottom formation. i think it could target levels closer to 24-25.
wHY IS PIRAMAL gLASS NOT A BETTER OPTION if one wants to invest in this sector IN TERMS OF
-
Low PE
-
Good track record
-
Impeccable promoter
Let me try to answer some of the queries: -
-
Is the fraud figure of Rs. 16 crores too high which should affect the valuation. By a rough calculation (opening reserves + profit for the year - dividend = closing reserves) closing reserves is lesser by at least Rs. 10crores of what it should be. Hence, safe to presume that Rs. 10 crores has been adjusted in Reserves (possible that this amount pertains to earlier years) Rs. 6 crores may have been adjusted in respective expense heads to which the fraud pertains (presuming that this amount pertains to FY 12)
-
Nothing to suggest that promoter is unethical.
-
Growth is for real as suggested by increasing FCF and reducing debt. Take special note of 3 fold increase in dividend rate.
I had sent an email to company secretary for some queries I had regarding the company and following are the queries and the reply I got today.
i am an investor in haldyn glass and would like to get a few queries answered by you if possible by email or if u suggest some convenient time and provide me a phone number i can call you.
queries:
1). The sales and profits of the company have been growing consistently which is a very heart warming thing for an investor. Has the company done any capex to enhance production capacities? If yes, what amount of capex has been done and how much capacity has been enhanced? Last I looked at the company’s capacity it was I think around 200 tons which had been increased from 150 tons in jun 09.
2). There had been reports of a fraud of Rs 21 crores committed by some employee/s of the company. What has been the company’s response to that? Any procedures to recover the amount in question? How has the amount been adjusted in the company’s books? has it been accounted in profit and loss account or has it been debited from reserves?
3). What kind of growth does the company see going forward? Can it keep up the momentum shown till now? And can the company keep up the margins shown till now or better those margins?
4). When is the AGM of the company due? and where is it likely to be held?
their reply
We refer to your mail dated July 28, 2012 and give below the reply.____
1). Sales and Profit figures for the year ended 31stMarch 2012 are as under:____
A. Net Sales/Income from Operation(Next to tax) Rs. 4852.80 Lakhs____
B.Net profit 809.41 Lakhs____
2). Purported misappropriation of funds by some seniors employees, were noticed during the year. The Company has lodged complaints against the alleged offenders with the Police/EOW who have seized sizeable funds/property which is kept in their custody. The Company expects to recover the misappropriated funds/property in due course.____
3). The Companyâs AGM will be held at 3 p.m. on Friday, 28thAugust 2012 at the Companyâs registered office at Village Gavasad, Taluka Padra, Vadodara 391 430. We hope you find it convenient to attend the AGM.
Hi,
Just readup the Haldyn story today.
Bullish view points:
-
Industry slated to grow at 10-15% driven by F&b, Pharma, Cosmetics, Liquor and Beer (Haldyn not present in beer and pharma according to HNG website!)
-
Superior OPM and NPM comapred to HNG (mkt leader) both of which increased considerbaly in last 6 months. Q-1 FY 13 OPM increased from 19% in Q-1 FY 12 to 25%and NPM increased from 12% to 17%. HNG has a NPM of 5% and OPM of 16%.
-
Strong BS, debt has decreased considerably. Finance charges decreased by 61% in Q-1 FY 13 which lead to superior NPM. (Total D)/E should be less than 0.5 after seeing the finance charges in Q-1.
-
Attractive valuation at TTM P/E of 3.43
Bearish View Points
-
Sales growth of only 7.7% in Q-1 compared to 18% of HNG. Sales growth visibility is low and net profit growth is driven by increasing margins. Once finance charges decrease is done with, net profit growthcould be muted. Need to understand the pricing power better.
-
Manufacturing only in one location compared to wide spread of HNG.
-
The financial fraudshows corporate governance is not strong.
One confusing aspect with regards to HNG and Haldyn. HNG has a “power and fuel expense” to sales ratio of 35-40% BUT Haldyn has the same at 13-15% !!! This is one source of superior margin for Haldyn as RM/Sales isworse thanHNG. Is this is classification issue? Pls correct me if something is amiss.
There is a very interesting investor presentation in the HNG website (neat website!)which covers the competitors product segments and individual segment contributions of the industry. http://www.hngil.com/corporatepresentation.php
The industry definitely looks interesting with percapita glass conatinerconsumption of India at 1.5kg compared to 6kg of China and 37kg of US and UK. HNG has rich valuation. Meeting the management will be good to bring in much needed clarity.
Cheers
Vinod
Link to Annual report of Haldyn
http://www.haldynglass.com/financial_results.aspx?SubCatID=2
Let me stick my neck out and put up this statement for debate “Is Haldyn looking very similar to what Mayur looked like in say 2008/2009”
Some Similarities: -
-
Very boring names
-
Regular acquiring of shares by promoter from open market
-
Belong’s to slow growth and non glamorous industry
-
Exhibiting above average growth as compared to industry
-
Bottom line growth outpacing topline growth primarily due to operational efficiencies
-
Lack of visibility of management
-
Constant reduction of debt
-
Increasing FCF
-
Increasing Dividend
-
No coverage by broking houses
-
Products are a small % of cost of the end product sold to customer
-
No RM issues
-
Stock undervalued
However, some concerns still remain: -
-
Impact of fraud not provided for in accounts. Surprisingly, even auditors have not qualified their report
-
Management not very forthcoming with response to shareholder queries. May be seasoned guys Know the tact to extract response.
-
Lack of clarity with respect to expansion
For a company with size of around 95 crores, a fraud amounting to 21 crores (that is the official reported figure) seems to be a big thing.
And no clarifications or explanations coming from management.
Thats a red flag of sizable proportions.
The market cap of the company is 92 crores and top line for FY 12 was 192 crs.
Agree with you that this is definitely a red flag. However, the management has disclosed the amount, involvement of senior employees and has taken legal action to recover the same.
Had the management been involved in fraud, I would have been very concerned. But I dont think the company could have put more details in public domain.
Still, as they say in market “I am cautiously optimistic”.