Jindal Poly Film - Looks like a very good bargain

Stock Opportunities
1

I am new to this forum and very happy to be here to get an opportunity to interact with some of the best value investors. From last few weeks I am analyzing Jindal poly and finding it very interesting. Please let me know your views

Company

Jindal Polyfilms is part of B.C Jindal group and is one of the largest manufacturer of BOPET and BOPP films in India. These films have many applications but the main use is in packaging (food, snacks, Other FMCG products) .

BOPP films are mainly sold in India whereas BOPET films are partly exported to Europe.

The main customers are packaging converters who in turn process these films for end customer (FMCG companies for example).

Competition

Key competitors are UFLEX, Garware Poly, Polyplex etc.

Jindal Poly has the following competitive advantages (moats)

  • It is one of the biggest manufacturers of BOPET and BOPP films (economies of scale)
  • No anti dumping duty in Europe. Most other competitors have to pay anti dumping duty. That may be the reason why it is also one of the biggest exporter to Europe

Valuation

CMP - Rs. 198.2

Market Cap - 912 cr

Reserves and Surplus - 1648 cr

Quoted and Unquoted Investments of 572 cr

D/E - 0.3

Sales (FY 2010) - 1700 cr

PAT (FY 2010) -208 cr

Net Cash flow from Operations(FY 2010) - 267 cr

Now PAT for FY 2011 was 592 cr but it is not representative as film prices increased sharply and came back to normal this year.

The company is looking extremely cheap. Its available just for 340 cr if we remove the investments and cash. Company can generate this much cash in just 1-2 years. Company has approved a buy back up to Rs 350 with a budget of 140 cr (not yet started).

Why is it selling cheap?

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I think Mr. market is over reacting due to the following reasons

  • The film prices came to normal levels after doubling for few months last year
  • SC banned use of plastics for Gutka use recently
  • Europe seems to be in trouble
1 Like
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Company

Competition

Valuation

_ Company

** started).

Why **

cheap? _

The stock ia trading a High Book to Market Ratio,Which is also one of the indicators of Value stock.The promoter holding is also on higher side.Attached is a Link of Technical & Fundamental analysis by Buy & Sell signals on Jindal Poly films.
Looks like a good buy to me below 200 level.

http://docs.google.com/viewer?a=v&q=cache:3gjSGL7gpaYJ:www.buysellsignals.net/BuySellSignals/report/India/Stock/PDF/Daily/India_pdf_412.pdf+piotroski+site:buysellsignals.net&hl=en&gl=in&pid=bl&srcid=ADGEESjo_qUHg05H7HYCJT_HkYgXkcWOKOSYHRLIJxKqOZQZtpn7T4F6Tk7vrJum2mFw4ylXUhfo5aziRZaxrPEoZjBlNKGFmEWjh0RAZknNSvYPizHKzAWz-_RelXsnvLPhv_723CPB&sig=AHIEtbSsgLMVlEeHNa1e_27x6pZ0QP7bsw

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Thanks Sand. Yes Jindal Poly Film looks good on all fundamental parameters in addition to P/B. Also don’t forget to look at around Rs 590+ cr in investments that is a huge part of the current book value.

In addition, the following factors make me believe that the value will be unlocked soon

1). As mentioned earlier, the company is planning to do a buy back till Rs 350 (140 cr budget). With this kind of budget they can actually buy out most of the public share holding

2). I think Flexible packaging industry is expected to grow over 10% for next few years. Packaging is an important part of any growing economy.

3). Debt/Equity is low compared to other peers like UFLEX. Anti dumping duty for the company is Zero in Europe.

4

The stock is up 9% today after a new notice from the company

"Jindal Poly Films Ltd has informed BSE that the Board of Directors of the Company in their meeting held on August 12, 2011, approved a buy back upto 40,00,000 Equity Shares at a price upto Rs. 350.00 per equity share aggregating to Rs. 140 crore. Thereafter, Jindal Photo Investments Ltd on behalf of all promoters of the Company had applied to the SEBI under Regulation 4 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997, seeking an exemption for increase in shareholding pursuant to the proposed buy. back of equity shares by the Company.

Thus the Company proposes to convene a board meeting on October 31, 2011 to pass a revised resolution so as to enable the Company to start the buy back in compliance of the provisions of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. The terms of Buy back are proposed to be kept unchanged as approved by the Board on August 12, 2011."

I think it only means that the company can start buy back without any additional SEBI approvals. The stock is trading at Rs 233 up from around Rs 200 a week ago although the buy back was known long time back.

5

This is a classic commodity company…if you do look at the RoE’s in the past (except FY 11 which was a bumper year), they range from about 10%-20%. But i do agree that such companies are an investment opportunity when they quote substantially below the book (As is the case now)

Other than the commoditized business, another concern would be their power subsidiary. They have already invested about 300 cr in to this power project (of the total 500 cr equity investment) for a 48% stake. But over the next 1-2 years the power project will require an additional 1300 cr equity investment (1800 mw project, funded 80:20 debt/equity). What that means is that almost all the cash generated will be getting invested in the power project. Market may not be liking that much in the present scenario!

But at the current valuation everything seems to be discounted for!

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Hi Madyam,

Yes. You are absolutely right. But I like the following facts

1.Its awell run packaging film (a commodity)company. Looks to be in a very goodshape compared to its competitors.

2.Its generating free cash flow from many years (true for most of the companies in this industry)

3). Available very cheap. Buy Back is a good plus.

Whats your opinion on the new power business? do you think it will suck up all the free cash flow for next few years and be worth zero? I am unable to get much info on it.

Also somehow I can’t see the cyclicality in this industry although film is a commodity. All the big companies seem to be doing Ok from many years. Any thoughts on that.

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I havent done any work on the BOPET/BOPP industry so doesnt really know the business dynamics.

Regarding the power industry: i do not like that much because ultimately these are businesses which will earn 15%-20% RoE depending on their efficiency, location, PPA’s etc. I prefer industries with substantially higher RoE. Then you have to consider the financial risks. This is a 9000 cr project with 1800 cr of equity contribution. If Jindal has to maintain the 48% stake, almost all the cash that they will generate in 2 years will have to be pumped in to this. And then if the project is delayed/fuel supply becomes a problem…at some point may be this will become a Jindal Poly subsidiary thereby immediately making the company over-leveraged! The power unit was supposed to do an IPO this year but i doubt how much investor interest will be there for yet another power company IPO. So if they cant raise the funds thru the IPO things could get dicey for Jindal Poly.

One additional negative factor that i found was that while Jindal Poly’s ownership in the power co is 65.55% (AR 11, pp 63) its voting power is only 48.71%!! Again not a very clean method when u are investing in other promoter co’s!

Having said that, the CMP may have discounted some of this. But going forward, you might end up getting a company whose power business may be bigger than the BOPET/BOPP business!

8

jindal poly seems to be getting cheaper by the day. cmp of around 170. close to 12 lacs (30% of total target)shares bought back at 15% of allocated sum.

company had mandated a buyback of max 40 lac shares at a max amount of 140 crores. It seems from recent announcement that they have bought 12 lac shares at a sum of around 21 crores.

It does look like an extremely cheap company but I would like to watch this one and polyplex for another quarter or two before taking a call on this one. The whole sector is riddled with overcapacity and pricing pressures bound to happen. So next couple of quarters need to be watched for the kind of results these companies post.

9

Here the update on Jindal poly.

The board of the company has passed a resolution which would result in spinoff of the investment bppk of the company under a new company called “Jindal Poly Investment”

post demerger the shareholders would get 1 share in “Jindal Poly Investment” for every 4 shares held in Jindal Poly

this would result in reduction in Equity of Jindal Poly by around 700 crore and derisk it from its 48% stake in “Jindal India Thermal Power Limited” http://www.jitpl.com/under-implementation.shtml

which is implementing a 1200 MW thermal power project in Orissa.

now because of that the ROE of film and packaging business should jump to 17-18% and should become cash positive.

also one would get an exposure to “Jindal India Thermal Power Limited” which is executing 1200 MW project in advance stages of completion.

All this on current market cap of around 710 crore. P/E as per SBIs report falls to 4 to 4.5 times net year

If interested in power exposure - other way of getting exposure to power project would be to buy Jindal Photo another group company quoting at a market cap of 100 crore which owns around 51% in the power project. (as per its annualk report).

Jindal Photo also has been allocated coal in Mandakini block in Orissa but is under CBI scanner.

Both seem like deep value plays

10

excel,

yes jindal poly seems to be getting more interesting by the day. and this demerger should be a positive event.

I am waiting for some chart patterns to form on this one on longer term ( subash – yeh baat note kar li jaye) before taking the plunge.

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This demerger creates a clear packaging business and provides investors to participate in more risky power business separately.

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hitesh bhai risk takers can also look at power business as well and jindal photo as well. risky but you are getting a 1200 MW capacity which should be ready soon with fuel security if the coal blocks stay. There is huge upside equally accompanied by very high risk.

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Just came across this news that jindal is going to acquire ExxonMobil s poly films business

Don’t know how big this is or what kind of affect this is going to have

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Hi,

I had studied the sector a year back and also met Polyplex and Cosmo guys. Don’t know about specific to buyback in Jindal, but in general, Polyplex is the best managed company in the sector.

The value of Polyplex india is less than value of its listed subsidiary in Thailand ! but is been that way for very long.

The MD said gutka ban impact is gonna be big as they are one of the largest customers. Also the prices are very volatile and even the management doesn’t know whats gonna happen next 6 months - year.

Cheers

15

:slight_smile:

jaye)

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Kunal B talking about jindal poly, jindal photo , and consolidated finest.

A bit dated report but if you want to break your head with the cross holding you would find it interesting.

http://xa.yimg.com/kq/groups/5893933/1685972015/name/BC+Jindal+Group+Update+Jan+15,+2010.pdf

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The summary of the excel report is that Consolidated Finvest holds directly or indirectly via its subsidiaries >70% of Jindal Poly Films and Jindal Photo.

Consolidated Finvest also holds 70% of its own stock directly or indirectly via its subsidiaries

There are two different classes of shares of Consolidated Finvest’s subsidiaries.The promoters have minimal equity holding of ~5% in these 3 companies and the subsidiaries of Consolidated Finvest but they hold more than 50% voting rights of the subsidiaries. Therefore, promoters have more than 50% voting rights in Consolidated Finvest.

Consolidated Finvest also owns Jindal India which manufactures ERW pipes, cold roll steel, galvanised Steel sheets and aluminium foil.

In the last quarter, the company has floated a new company name Global non-wovens to manufacture Non Woven textiles which are used in medicine and hygiene related applications among others.

The subsidiaries of the companies have numerous value investments and the management seems to follows Warren Buffet’s capital allocation philosophy. (search forJPF’s CEOs interview last year)

The promoters had tried to unsuccessfully delist the company for Rs 85 years per share a couple of years ago.

The packaging business is suffering from overcapacity presently which is likely to continue for a year or two. In case of any green shoots this sector will gain a lot as this is highly exposed to consumption. The cyclical downturn has resulted in many western companies becoming uncompetitive and on verge of shutdown. One of them is the company that recently acquired Max India’s packaging business.

Like many other investment companies, as per current market price of JPF alone, this company is quoting at <10% of its intrinsic value. JPF’s current market cap is about Rs 670 crore and Consolidated Finvest’s is ~ Rs 120 crore. Since it own 70% in itself, current undervaluation is about 20 times. JPF’s net profit in next 2 years can reach Rs 500 Crore easily giving it a conservative market cap of Rs 2500 crore. This will result in a situtation where Consolidated Finvest is undervalued by 80 to 100 times. Therefore its current relative price is less than the average cost of getting in and out of a stock.

This might surprise some but its true.Do your analysis and find out how. A significant amount of this undervaluation can accrue to the patient shareholder.

Accaica Partners, the bill Ruane company and some private investors own about 10% of the company, so the de-listing cannot happen at promoter’s price or will. The trading pattern in the stock for a long period has been that there are 2k shares on offer at x price and demand for 10k shares at x-1 Rupee progressively driving down the stock. The private investors have been steadily increasing their stake.

The new Companies bill and increasing regulations will make any negative surprises more difficult making this even less riskier than it already is.

Even if you are not interested in taking the risk, do look at the financials. This is a case study in how much undervalued a security can be. Most of the subsidiary holding structure related data is not easily available and you will have to refer NSE’s announcement archives. Look for Scheme of arrangement related PDF docs.

18

Good analysis bagdu jee

Any comments on the power business of jindal group which is also indirectly owned by consolidated finest?

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The status of the Project is on track. Financial closure is done and equipment order has been place. Tata Power had indicated in their conference call one year ago and reiterated the same in August that Mandaikini coal block will come on stream in FY14 or FY15. As per MOEF the Project has been granted environmental clearance in 17th Jan 2011 . The company needed to divert some forest land for which there were some adverse comments in Environment Clearance agency in its meeting dated 22nd Nov 2012. The forest land diversion has been granted in the subsequent meeting in December subject to certain conditions like afforestation elsewhere and monitoring by the state government.

There have been reports of CBI investigations in the coal block allocation. Every coal allocated in last few years is under the examination and the ones which have been taken back are those in which promoters had no intention of producing power but to just buy and sit tight and wait for right price to dispose the coal at. This case is different. The progress of the coal block can be tracked here: http://mccl.org.in/index.html

In all likelihood, if there is no earthquake or storm or any other act of God for which no insurance exists, the project should start generating profits of Rs 200 crore in next 2 years.

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Thanks Bagdu

I think it is highly unlikely that they would get a clearance of mandakini block anytime soon. This is a political decision and not an economic one. How can government favour someone to profit from low cost coal in tcurrent environment?