ValuePickr Forum

Jayant Agro Postal Ballot for 700cr Asset Sale

Jayant Agro on July 5,2014 had a board meeting and is now asking for Shareholder Approval for Special Resolutions.

a) Borrowing of money up to Rs. 700 Crore under Section 180 (1) © of the Companies Act, 2013 where the money to be borrowed together with the money already borrowed by the company will exceed aggregate of its paid-up share capital and free reserves, apart from temporary loans obtained from the Companyas bankers;

b)Creating mortgages, charges, hypothecation etc. on the Companyas assets, undertaking properties, under Section 180 (1) (a) to secure the borrowings of the Company.

c)Giving of loan to anybody corporate or providing guarantee or security to any body corporate or acquiring by way of subscription, purchase of otherwise securities of any body corporate in excess of the limits specified under Section 186 (3) of the Companies Act, 2013 up to Rs. 700 Crore.

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First glance it looks like company is looking at borrowing 700cr well above its reserve levels hence the postal ballot…

Digging deeper if you look at Point (b)

b)Creating mortgages, charges, hypothecation etc. on the Companyas assets, undertaking properties, under Section 180 (1) (a) to secure the borrowings of the Company.

now Section 180(1)(a) for which the company is asking for shareholder approval … the Company Act 2013 Section 180(1)(a) states…

180). (1) The Board of Directors of a company shall exercise the following powers only with the consent of the company by a special resolution, namely:a

(a) to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the company owns more than one undertaking,of the whole or substantially the whole of any of such undertakings

Explanation.aFor the purposes of this clause,a

(i) aundertakinga shall mean an undertaking in which the investment of the company exceeds twenty per cent. of its net worth as per the audited balance sheet of the preceding financial year or an undertaking which generates twenty per cent. of the total income of the company during the previous financial year;

(ii) the expression asubstantially the whole of the undertakinga in any financial year shall mean twenty percent. or more of the value of the undertaking as per the audited balance sheet of the preceding financial year;

Reading the section 180(1)(a) of the company act indicates that company is looking at substantial asset sale worth 700Cr but has watered down the Section 180(1)(a) and reworded it to sound like a 700cr loan… (creative writing and thinking…)

My understanding is that Arkema (French 7 billion Euro sales Speciality chemical giant and largest consumer of castor oil and castor oil derivatives in the world) would like to have majority stake to ensure they can call the shots in Ihsedu Agro Chem. Ihsedu Agro chem is located in banaskantha district, gujarat and Banaskantha district produces 200,000 Metric Tonnes of castor which equals to 2nd largest castor growing country’s castor production (China)

This special situations postal ballot approval for 700Cr is nothing but a stake sale in Ihsedu agrochem…

Ihsedu Agro Chem March 2013

Sales: 885Cr

PBDIT: 24.8Cr

PAT:8.5Cr

Dividend payout: 4.96Cr

Jayant agro stake in ihsedu agrochem : 75.1%

Arkema Stake in ihsedu agrochem: 24.9%

Postal ballot

http://www.moneycontrol.com/livefeed_pdf/Jul2014/Jayant%20Agro_753.pdf

Company act 2013:

http://indiacode.nic.in/acts-in-pdf/182013.pdf

Would like to get views from other investors/boarders… if my interpretation of Jayant agro Postal ballot holds some water …

if the news of 700Cr stake sale is true the stock price could react positively by a huge number as current market cap of Jayant Agro Organics is just 180Cr

Sept 27,2014 is the AGM Date … I am assuming the sale will be finalized before the AGM else there could a lot of questions to answer about 700cr loan in the AGM… also stake sale would result in an AGM “Party”!!

What I cant understand is why is the company asking for shareholder approval for borrowing Rs. 700 cr + selling an undertaking worth Rs. 700 cr.

Do they want to borrow money in their name; loan it someone else who will then purchase their stake in Ishedu, thus get their 700 cr back and repay their loan? If yes, then they are replacing their investment in Ishedu with a loan given of Rs. 700 cr. Thus they will have no cash to distribute to shareholders. Sounds like ripping off the shareholders?

I think you are reading too much into this.

Knowing nothing about the company and looking just at the three resolutions sequentially, looks like the company is borrowing money (upto 700 crores), creating security and is loaning the money or investing the money into some other company.

Bomi Karkaria ji:

1). company Postal Ballot only states it wants shareholder permission for “UPTO” 700cr debt which is way beyond its reserves.

2.My interpretation is: that its not actually 700cr debt but the section 180(1)(a) approval means the company is looking to sell some substantial asset (based on the description of section 180(1)(a) in company law worth 700cr

3). Company act 2013 is a new company act and it looks like lot of companies are getting approval for 180(1)(a) which was not required in old company law of India.

The historical facts are:-

Jayant Agro Organics is the largest Player in castor oil and castor oil business in India Jayant export sales equal 40% of India’s exports.

India produces 75=80% of worlds castor seed production and this means Jayant is a substantial player in the global castor oil/castor oil derivatives business…

a) Arkema a 7 billion euro sales Speciality chemical company has a 24.9% stake in Jayant agro subsidiary (Ihsedu agrochem) Ihsedu Agro chem is located in Banaskantha district in gujarat , banaskantha is the largest castor growing district in gujarat and its production 200,000 Metric tonnes equals the production of 2nd largest castor producing country -China

Ihsedu agrochem was formed by buying govt of gujarat castor seed crushing plant by jayant agro…and upgrading its processes and capcity…

b) Jayant agro has also started a new JV “Vithal castor polyols pvt limited” with shareholding as: Jayant agro: 50%, Mitsui Chemical:40%, ITOH OIL: 10%. this is going to produce green polyols for automotive industry in asia.

http://whatsup-indianstockideas.blogspot.in/2013/09/jayant-agro-new-joint-venture-in-india.html

http://whatsup-indianstockideas.blogspot.in/2014/02/jayant-agro-organics-bio-polyol-plant-jv.html

c) Jayant agro has another Subsidiary: Ihsedu ITOH Green Chemical marketing company:

Jayant agro stake: 60%, ITOH OIL: 40%

There was another company Ihsedu Speciality chemicals where Jayant agro had a JV with

Mitsui Group, Mitsui stake: 25%, Jayant agro stake 75%…

Jayant agro had bought back the stake of Mitsui and merged “ihsedu speciality chemicals” with Jayant agro. Ihsedu speciality chemicals was manufacturing sebacic acid and its salts which is the most widely used castor oil derivative in the world.

My personal opinion is Arkema which is the worlds largest consumer of castor oil and castor oil derivatives would like to have majority control over Ihsedu AgroChem… and 24.9% stake was just the starting point… and after all the required conditions are met (capacity of plant, supply chain for castor etc…) Arkema might have had riders that they will increase stake to majority stake at a premium…

24.9% stake was bought for 30Cr … jayant holds 75.1% which is worth 90Cr …

Ihsedu Agro chem is a 800Cr sales company as per annual report March 2013.

http://www.jayantagro.com/IAPL%20Annual%20Report%202012-13.pdf

jayant agro snapshot

CMP: 120, MCap: 178Cr

ROCE: 19.45%, ROE: 22.61%

3yrs CAGR Sales: 21.49%

3 yrs CAGR inNet Profits: 43.88%

PE: 4.83 (March 2014)

EV to Sales: 0.30

EV to EBIDTA: 4.96

7 yrs 588% increase in profits and 335% increase in sales

Consolidated Sales/NP/dividend numbers.

March 2007 Sales 462.49Cr Net Profit: 6.76Cr Div:1.25

March 2008 Sales 605.96Cr Net Profit: 9.51Cr Div:1.25

March 2009 Sales 875.86Cr Net Profit 7.49Cr Div: 1.25

March 2010 Sales 904.01Cr Net Profit: 12.47Cr Div:1.50

March 2011 Sales 1,175.26Cr Net Profit: 24.92Cr Div 1.75

March 2012 Sales 1,832.26Cr Net Profit: 31.35Cr Div: 2.00

March 2013 Sales 1,624Cr Net Profit: 36.24Cr Div: 2.25

March 2014 Sales 1,550Cr NProfit: 39.75cr Div: 3/=

Consistent dividend paying company since inception.(20+yrs)

40% equity is Bonus capital.

Promoter stake 65.2%

Only 5244 shareholders…

The real “Trigger” is that European Union has banned Low molecular phthalates (plasticisers) from Europe starting Feb 2015… as low molecular weight phthalates(80% of the market share) that are cheaper and made from crude oil is cancerous and can cause Birth Defects (Substances of Very High Concern) and high molecular weight phthalates can be derived from castor oil (as well as crude oil) … so all plastics that come in contact with humans… from electrical wiring used in houses to shower curtains and all things plastic need to use "High molecular weight phtahalates from Feb 2015… and major players are gearing up for the surge in demand…

Low molecular weight phthalates to be banned starting feb 2015

http://www.plasticisers.org/media/74/58/European-plasticisers-market-continues-major-shift-towards-high-phthalates

Nike has already come out with football shoes made of castor…

http://whatsup-indianstockideas.blogspot.in/2012/07/jayant-agro-castor-oil-shoes-by-nike.html

Ford has come out with car dashboards made from castor oil derivatives starting 2012

http://whatsup-indianstockideas.blogspot.in/2011/10/jayant-agro-ford-focus-2012-features.html

Sports high performance Clothes, sports goods, accessories all are moving to castor based derivatives … (not revealing that its the EU regulation that’s driving them… but projecting a greener image…)

http://www.sofila.eu/wp-content/uploads/2012/09/WSA-may-june-2012.pdf

auto parts superior in performance made from castor oil derivatives…

http://whatsup-indianstockideas.blogspot.in/2011/10/jayant-agro-fuel-line-made-of-renewably.html

The point is Jayant is uniquely placed as its the largest player in India and India is the largest producer of castor seeds… within India jayant has backward integrated by buying out guj govt seed crushing facility in the largest castor growing district in Gujarat and India

Jayant is allowed to run pvt mandis for castor in gujarat

Jayant has built direct linkages with farmers using NGO’s

http://whatsup-indianstockideas.blogspot.in/2014/05/jayant-agroself-employed-women.html

all this makes jayant an in-demand company in sunrise industry of "green chemicals…

I hope all this provides some Idea why jayant’s 180(1)(a) approval looks like a step in asset sale … and not a postal ballot for additional debt

=happy investing

whatsup-indianstockideas

1 Like

hi Prahalad,

I see your point why Akerma may want larger stake in Ihsedu Agro Chem. I also see that margins of Ihsedu Agro Chem are much lower than value added products that Jayant makes under main company.But, I do not interpret this BSE announcement, as an effort to sell out of Ihsedu Agro Chem stake at 700Cr. Why would they pay 1 times sales, for processing business with less than 1% margins? Even aggressive valuation would not be more than half sales.

I searched for and found many BSE announcements referencing section 180 (1)(a). Prism Cement, Ahluwalia contracts etc etc. ALL (without exception) use section 180(1)(a) for creating charges for borrowings. So Jayant Agro’s announcement does NOT seem to be a case of creative writing to hide intention of selling Ihsedu Agro Chem stake.

Let me know if you have any other argument towards Akerma trying to increase it’s stake. If that really is the case, I agree that Jayant may get a windfall.

company.But,

Rajul Doriwala ji:

the more I talk to other investors… the more I am getting convinced that the 180(1)(a) approval in this special resolution is nothing but standard operating procedure… We are most likely not going to see any Asset sale of 700Cr

With regards to Low margin business… what we need to understand is that profits margin is one way to look at good business… but any business with high profit margin is suseptible to attract new competetion …

Well lets look at a hypothetical business with 2% profit margin and say your investment is Rs100/= and you make 2% profit on it. that’s Sales: 100/= Net Profit 2/=

Net Profit Margin: Profit/Sales = 2/100 = 2%

Return On Capital Employed: Profit/Capital employed = 2/100 = 2%

well now consider one small change suppose 100/= is the sales done in 1 month then…

Annual (12 months sales)= 12 x 100 = 1200/=

Annual (12 months profit) = 12 x 2 = 24/=

Now the key is to understand how much capital is employed,

here the 100/= bucks capital is free after the first month to be used again in next 11 months so actual capital employed is only 100/= , lets calculate Net Profit margin and Return on capital employed

Net Profit margin = Profit / Sales = 24/1200 = 2%

Return on Capital Employed = Profit/Capital employed = 24/100 = 24%

So the 2% profit margin business, since it can sell its inventory & reinvest the capital again 12 times a year, capital employed actually gets a return of 24%

By definition: ROCE = PBIT/(Capital Employed =total asets - current liabilities)

Ihsedu Agro Chem: (Annual report 2013 link)

PBDIT: 21.01Cr

Capital employed: = 188.82cr - 129.93cr = 58.89Cr

ROCE = 21.01/58.89 = 35.67%

Though Net profit margin is: 8.52cr/885.07Cr = 0.96% since the capital actually employed is very less and capital is reallocated back… the ROCE = 35.67%

Jayant agro has a similar characteristics… this low margin business(I think done on purpose to keep competetion at bay!!) has ensured jayant to become the largest player in castor… And its a very profitable business…

Jayant has paid dividends consistently since inception which is more than 20yrs…

Jayant agro performance from 1993-2005

(Link)

Jayant Agro performance from 2004-2013

(link)

Conclusion: Jayant Agro Organics and Ihsedu Agro chem… though seem to be not so attractive companies due to their low profit margins… but their Return on capital is pretty high… which means its a very well run business… with great supply chain.

Also they are the largest players in the world and growing in strength with new alliances…

Arkema 7 billion euro sales Joint Venture in- Ihsedu Agro Chem &

Mitsui 14 billion dollar Sales company Joint Venture in - Vithal Castor polyol

=happy investing

whatsup-indianstockideas

This company used to supply castor oil toa US based company which then sold it to end users. The US company filed a court case against Jayant for poaching two of its employees who essentially stole customer relationships and gave it to Jayant thus damaging the sales of the US based company. The US company won the case in court and Jayant coughed up some damages. But avoiding such things is one possible reason why foreign companies will want to have control of suppliers like Jayant.

I stand corrected on this. Thefacts as Iunderstand noware:

There are 2 companies… “Jayant Oil” and “Jayant Agro” Jayant Oil… which was renamed as Biotor industries was caught poaching talent… and jayant agro helped inform the US customer (as he was a customer to both jayant Oil(biotor) and jayant agro…) the US company then setup a trap… for its employees who were double timing with “Jayant Oil” by keeping records of their email and also their laptop… (for taking trade secrets) … after they had sufficient info… they took the employees as well as “Jayant Oil (BIOTOR)” to court… Jayant Agro helped the US firm by warning them about the rogue employees… BIOTOR was later on caught in another case of fraud of 1500cr for castor crop in India… and the promoters are cooling their heels in the jail…

Jayant oil and Jayant agro were started by Kapadia’s and Udeshi’s… when they split Kapadia’s took over “Jayant oil(biotor)” while Udeshi’s took over “Jayant agro”

Thanks Prahladji for clearing things up

toa

Hello ALL ,

Jayant Agro cmp 185
looks good to me Technically
Huge Volume Spurt today
if Any Fundamental inputs it would be Useful
though i am trying to find any report to know about the
latest development , could not find any

an interesting thing i found today is
Investor Mr. GIRISH GULATI name appears in SHP
for the first time .

posting monthly Chart , Details on Chart

Recently started tracking it. Latest AR mentions that the company products are alternative to crude derivatives. And rising crude prices increase the demand for the company’s products.

Numbers of last couple of quarters were good.

Only issue is the volatile prices of castor seeds.



Does anyone still tracks this company?

I used to track this earlier. Too many moving parts here, neither the input prices nor the output prices are under control. The input is linked to your castor seed production and demand, while the output is linked to crude, because most of the castor derivatives are a substitute to petrochemicals, and there is no correlation between the two. Nevertheless, the company has still been able to maintain the gross margins in derivatives, in a tight range of 26-28% which is commendable. They had a massive hit for 2 quarters, because some of the contracts from the Chinese customers weren’t honored when the prices corrected. Subsequently the company discontinued its engagement with those clients.

I am keen to know more on their plans with the 2 new WOS that they announced. Unfortunately couldn’t attend the recent AGM. Can anyone please share some insights of the discussions that happened at the AGM?

Phthalates: Synthetic chemical in consumer products linked to early death, study finds

Phthalates: Synthetic chemical in consumer products linked to early death, study finds (msn.com)