I came across Jasch Industries Ltd by pure chance, basis a result update sent by a friend on whatsapp. I had never heard of the company, but once I got down to studying it, I found a few noteworthy items.
It is primarily a family run business, based in Sonepat Hayana, run by the Garg family. It has two completely disparate divisions - a PVC/PU coated fabric manufacturing division (ala Mayur Uniquoters, without the fantastic metrics of course ) and an industrial gauge manufacturing division ( where it makes gauges that are used to measure the thickness of paper, plastic etc).
What I found interesting:
In an effort to be very crisp, here it is (a snapshot of a portion of the 2016 AR)
Naturally, there has to be a de-merger for value unlocking to be possible and guess what…it is happening!
The electronic gauge manufacturing division will be demerged to its wholly owned subsidiary Jasch Automation Ltd and the artificial leather business will be retained in Jasch Insutries Ltd. Both companies will be listed. Yay!
a. From my reading, it looks like that all the debt is to be transferred to the Gauge manufacturing division (I dont know if this is taken as a positive by some, as they might be keen on the PU division). Request someone to confirm if my understanding is correct in this matter.
b. Thinly traded counter with low volumes, hence subject to unnecessary vagaries.
Hope that some members take some interest in this nondescript counter
Q3 results look decent, the volumes have also been picking up in the last few sessions. Should get a thumbs up from the market.
Disc: tracking position
I have few questions on their Electronic gauge division. Has any one got the answers then please respond…
- This Test and Measurement industry is typically dominated by large well capitalized technology focused firms. This also tends to be intensely R&D focused industry with heavy R&D expenditure just to keep your position. What is the advantage Jasch automation would have in this industry in the long run? Do they have some kind of niche advantage? This knowledge will allow us to try to project the ballpark future for this division (if not exact numbers). Other than the fact that they acquired one small US company I did not find any data on this matter. So my question is …Why should steel/Aluminium plants come to them for sourcing?
2, The positive factor is they have installed about 100-150 systems across the world over last 15 years and have few repeat customers like Arcelor Mittal steel. But the business is intensely cyclical if you read the management commentary and see the division sales numbers. This equipment is Quality control equipment and hence part of capital expenditure by end user industries. So the fortune of jasch is tied to fortunes of the cyclical businesses like steel, plastics, paper etc. Going forward how they plan to increase the sales YoY? If you see past 5 years then the growth in sales is highly fluctuating. The combined company has shown growth almost every year because when Gauging division is floundering the synthetic leather division is doing fine and vice versa. But if you strip the divisions and analyze separately then the reality becomes obvious. As the base is so small for this division that they should ideally grow YoY even in cyclical industry if they have some competitive edge in the market.
- The margins look healthy and return on assets also look healthy. But the product is one of a kind purchase by their customers and not a regular consumables that is purchased repeatedly. It also may be non-trivial investment by their customers as part of capex plan and so completely discretionary spending. (Hence cyclical nature of business.) That poses certain risk to the business and valuation must take this risk into account. Forecasting numbers may not be easy for this division. and so does the DCF based valuation. If we want to try relative valuation then do you know any peers in same line of business…electronic equipment or Test & Measurement equipment companies?
Having said that, I think if we get more clarity on sustainability of gauging business and most importantly Sources of that sustainability then I think it may help us build the conviction and this may turn out to be interesting opportunity.
Could any one access the management? Are they reachable? Any one knows about their reputation?
Acquisition of a company in US…byJasch Subsidiary
Indev Gauging Systems, A North American leader in in-line process measurement and control solutions has signed a definitive agreement to acquire the assets of Automation and Control Technology, Inc. (ACT), also an industry leader in similar applications. The combined new company will offer the most advanced and cost effective in-line web based measurement and control technologies currently available within the Coatings/Converting, Building Products, Metals, Plastics and Non-Woven Industries today.
With this move the current president of ACT, Charles Totel, will now lead the new Indev-ACT Team as President while Bruce Johnson will become the Vice President of Sales and Marketing. As briefed by Mr. Johnson: “With an acquisition such as this a strong focus is required in the areas of our greatest strengths. Chuck’s successful management track record, strong vision and un-parallel energy in motivating people make him the perfect choice to advance us to the next level as a company. I’m extremely honored to work with him while focusing my efforts in leading the sales and marketing of the company as we move forward.”
Indev has expanded from simple in-line measurement solutions into the more stringent demands of Advanced Coatings, Paper, Metals, Films and Building Product industries over the past 30 years. In the last 7 years Indev has added people in software development, design, controls, sales and service. With the latest purchase of ACT, Indev has substantially expanded their Engineering, Manufacturing and Delivery capabilities even more. According to Chuck Totel, the new President of Indev Gauging Systems,” Along with the added investment in our people and processes, Indev is now positioned to continue to aggressively increase our North American market share while still providing the most technically advanced, cost effective and best supported web based measurement systems in the industry. As part of the acquisition, Indev will be moving the US corporate headquarters to Dublin, Ohio where an even larger temperature controlled manufacturing facility and offices with over 20,000 square foot of operating room allowing Indev-ACT to meet the increased demand for Systems and Service by our customers.”
Source : http://www.autocontroltech.com/
Promoters are continuously buying shares from the market. Debt gets reduced considerably. Capacity expansion is already completed [https://www.bseindia.com/xml-data/corpfiling/AttachHis/ea9fdda6-d167-4906-865b-233f0633c9ec.pdf]. Presently, valuation looks attractive. Do your due diligence before investing.
Any idea why they have never paid dividend despite having significant cash on books and a consistently positive CFO?
I do not know the actual reason, but maybe the following reasons
(1) earlier they were reducing the debt.
(2) Presently maybe because of COVID -19 situation.
Interestingly, the promoters have been buying in every quarter. Any idea on the clientele for both the businesses.
Disc: Not invested
Promoters have other unlisted businesses including Jasch Footwears Pvt Ltd:
It would not be implausible to think that Jasch Footwears is procuring raw materials from the coated fabric segment of the listed entity. If so, one must consider the magnitude of such purchases (how much % Jasch Footwears contributes to coated fabric segment sales) and whether it is done at market prices.
This demerger was done back in 2016 itself? Apparently they have announced demerger of Electronic Gauges business again recently (Nov 2021), this time into Jasch Gauging Technologies Ltd. (https://www.bseindia.com/xml-data/corpfiling/AttachHis/733476c5-cb75-46a5-87a9-a9d8a5406864.pdf)
Anyone knows what happened to Jasch Automation? Last AGM and balance sheet was in 2017
I believe in their PU/PVC Coated Fabric segment, clients include Puma, Red Tape, Bata.
Disc- no holdings