Jindal Poly Film - Looks like a very good bargain

Stock Opportunities
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I don’t get what you are saying. There is no clearance pending. The blocks have been allotted, land has been acquired, financial closure is done, orders for equipment has been placed, environmental clearance is done. Industry need electricity. This is a routine examination as part of a larger exercise. The company has got coal tie-up for half the capacity from MCL as well.

For producing electricity, if a company has been allotted coal block and has been on track with the Project there won’t be any legal grounds to take the block back. The problem is for the guys who got the blocks for mining and milking.

In any case, this is something in the future and will not dilute the value that is already existing. If this gets executed what would 80x will become 120x instead.Sounds funny!

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Have they acquired the land? Do they have the mining lease?

Still a long was to go before they are able to start mining.

Even after getting approvals they might be forced to make only regulated returns. This might also happen to JSPL who have been making abnormal returns out of their coal mine.

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Please see the Mandakini A Block Milestones in the link above. As per the sequence of steps, Forest clearance has to be obtained first and that was done in December 2012. Of the non forest land, LA notification for private land has been issued and the government owned land is in progress. You can further track the land acquisition progress at this Link: http://www.idco.in/tender/non_mou.htm link. Of the 1606 acre land, about 100 acre has been acquired. Maybe substantial amount of forest land is involved and that might be acquired post the recent Forest clearance.

The comparison with JSPL is not really prudent as that is a much bigger company. Even regulated returns (16% of 2000 crore will it be?) for this company would be significant when you spread it over a low equity base of 30-40 crores. But that is a side show really. The packaging business is the real deal.

On 1st February, the Exxon deal has been granted ‘Transaction Granted Early termination’ by Federal Trade Commission i.e. waiver from 1 month waiting period for transaction to be consummated. This deal will give JPF access to proprietary technology which will act as a catalyst for its future growth.

Polyplex was also in the hunt for acquisitions to get access to technologies that it currently does not have. That too is an excellent company and there is no Amar Singh link to that company as some people on this forum and Equity Desk are afraid of. There are two Sanji Chaddhas with different ages both whom incidentally are in Hydro power. One is an IITian and other EDC guy is not. I am invested in both Polyplex and Consolidated but have increased my weightage to Consolidated post the Exxon deal. Polyplex’s has got some tax benefits for their USA plant which is located in a strategic location. Some high capacity Shale gas based feedstock plants are coming up nearby which will give them competitive cost advantage.

I saw the recent financials of Max and they are still showing Packaging film financials. Almost nil profits. Wondering if the deal with Treofan fell through. Treofan is owned by a publicly listed Italian company whose financials are available publicly and it is in the grave.

The other major Indian player Uflex has beaten more than it can chew and its financials are in dire straits. It has been erratic with its disclosures and I won’t be surprised if it goes bankrupt.

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Thanks for the link and details.

Land acquisition is the biggest issue just look at posco.

Also the equity of the power project would be a lot lower than 2000 crore

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the land for the power plant has been acquired, a substantial portion of the mining land would be government owned. This case is certainly not comparable to Posco which is a much bigger project and has much bigger stakes.

If the initial equity was 1000 crore, by the time the project comes on stream, the return forgone in the interim years should add up to the equity. In a 70:30 debt equity ratio, equity will be 1000+ crore, over 4.5 years this would become 2000 crore.

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I tried to find the equity of the power project but as of now it seems that both jindal photo and jindal poly have invested only something lie 600 crores in the project.

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Is anyone tracking this company lately ? The stock has been on a downtrend post last diwali, however at the current valuations the stock seems to be at reasonable comfort valuations.

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Dear bbbhutra,

I do share your opinion. However, low ROCE,ROE and de-growth are the factors that worry me.

On the other side, their TTM PAT + Depre. is ~530 Cr against a market cap of 1500-1600 cr. This is tempting :slight_smile:

Still contemplating what to do.
Please do let me know your views.
Sincerely,
Django

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Well with the crude being low the company should continue to fine. In this overheated market, the valuation were comforting and hence decided to stick to it. I have been investing in this company since 226 level. However since the sales were stagnant, I had limited my investment in it to 2% of my portfolio then, which now stands at 1% since I increased my investment in other stocks.

Not sure of the real reason behind the rally except that its a valuation catch-up, coupled with all Jindal stocks rising and nevertheless market momentum driven. Also it has always been a bonus candidate.

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Any bulk deals updates on jindal polyfilms?

If anyone has some information pls share

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With all the writeoffs behind it, stock is now trading at TTM EV/Ebitda of 4 on a standalone basis making it very attractive. Plus market is not giving any valuations to it’s associate company JPF Netherland BV.

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Any one has any analysis on the future prospects on Jindal polyfilms.

Lot of analysis on polyplex corp and cosmo films are being posted… Is Jindal polyfilms not comparable on the basis of performance?

Kindly post some insights?

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As per my understanding of the case :slight_smile:

  • Kolkata-based Soyuz Trading and Rishi Trading, owned by the Shyam Jindal family, are promoter group firms of JPFL.

  • Rishi and Soyuz, together, floated a company called Anchor India Image & Films.

  • Three months after the announcement of the agreement with ExxonMobil, in January 2013, Anchor India floated a subsidiary in Singapore called Anchor Image & Films Singapore with an investment of $62,000 (Rs 34 lakh at forex rates of January 2013).

  • Soon, Anchor Singapore subscribed to 49 per cent shares of JPF Netherlands for 41,000 Euros (Rs 30 lakh), while 51 per cent was owned by Jindal Poly Films.###

  • JPF Netherlands was used to acquire the ExxonMobil BOPP business.

  • Guarantees and shareholder approval
    Funds for the acquisition were raised by JPF Netherlands from the London branch of the SBI, the Exim Bank and Societe Generale, in Paris.

  • These loans were secured by corporate guarantees given by JPFL.

  • The loans with State Bank of India, London branch and Export Import Bank of India are secured by a guarantee of the parent company Jindal Poly Film and requires Jindal Poly films to maintain certain financial ratios and comply with certain financial covenants on a consolidated level.

  • Anchor Singapore did not give any such guarantees.

  • The resolution for approval of these guarantees and the explanatory statements therein, which was put up to shareholders through postal ballot in October-November 2013, was silent about promoter interest in the transaction.

  • In August 2016, S.R. Dinodia & Co, the independent valuers hired by the company, valued JPF Netherlands at Rs 8,247.7 crore based on discounted cash flow basis.

  • Two months after this valuation report, Anchor Singapore announced a buyback of shares held by Anchor India and other group entities such as Jindal Photo and Jindal Films India.

  • Following this, Anchor Singapore was merged with a company called Global Synergy, which is fully owned by Dubai-based Synergy Consultancy and Management Services.

  • JPFL has not given details about the ultimate owners of this Dubai-based entity.

Summary :slight_smile:

  • The acquisition of Exxon mobile was totally debt funded with Equity infusion of merely 84000 in JPF Netherlands by Jindal Poly India (51%) and Anchor Singapore (49%).

  • The debt was raised purely on the strengths of Corporate Guarantee of Jindal Poly India.
    *There was no financial standing of Anchor Singapore and hence there was no relevance of Corporate Guarantee of Anchor Singapore.

  • As there was no equity (only Euro 41000 i.e Rs 30 lac) contribution by Anchor Singapore, the structure of JPF Netherlands should have been 100% shareholding of Jindal Poly Films India.

  • ###There was no need of subscription of 49% sahres of JPF Netherlands by Anchor Singapore and this was done only to dupe shareholders of Jindal Poly India and personally benefit the holding companies of Promoters.

  • Anchor Singapore (Promoter entity) got 49% shareholding in acquired buisness of Exxon Mobile through a paltry investment of EURO 41000 i,e Rs 30 Lac at the cost and expenses and liability taken by (shareholders of) Jindal Poly Films India as it had given Corporate Guarantee to the Banks who had lended to JPF Netherland.

  • If suppose JPF Netherland would have defaulted and decalred Bankrupt than Jindal Poly India, apart from writing off its equity investment of EURO 42000 would have also been required to pay the loan availed of EURO 135 Million whereas Anchor Singapore (Promoter entity) would have been required to write off only and only equity investment of Euro 41000 as it has not given any Corporate Guarantee.

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  • Clearly the odds are in favor of shareholder of Anchor India (Promoter entity) as agaisnt shareholders of Jindal poly India.

  • This shows how the promoters treat its shareholders and whenever they get opportunity they try to en cash it through their holding Companies.

My conclusion : Corporate governance is pathetic and also with the Power venture fiasco the company is a very poor Capital allocator and also very poor in execution.
Personal interest of promoters is given preference over creating value for shareholders. Sharing of profits with share holders is not evident , the Company has declared dividend of only Rs 1 against EPS of Rs 112 for FY 2019-20… Also it has written off all its investment in Jindal Power Tech and saddled Banks with NPA of more than 7000 Crs.
The promoters should be held responsible for their decisions.

Disclosure : Just tracking Company for investment looking to the Cyclical up move but now the Company is a real no go for me.

JPF Netherland BV 2017.pdf (1.7 MB)

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Has anyone attended the AGM?

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Thank you for the short summary…!!

Fast forward.

Universus Photo Imaging Ltd is the owner of ~47.5% of JPF Netherlands BV, which is further reduced to 42.5% in Aug 2020.

The Equity was received from Jindal Polyfilms as a scheme of demerger. Photofilms division and the investment in Netherlands company was demerged to Universus Photo Imaging Ltd.

> Now, let’s quickly look at the demerged company* :male_detective:

  • FY 2020 - 62 Cr Sale with 40 Cr PAT inclusive of 28 Cr of Associates Profit.
  • Q1 2020 - 9.6 Cr Sale with 36 Cr PAT, inclusive of 31 Cr of Associates Profit

Certainly, it’s riding on the consolidated profits of it’s associate.

The company is into making of X Ray Films, which is currently in huge demand due to surge in X Ray requirement in Covid cases. The impact should be visible in Q2 Sep’20.

Also, the company has ~120 Cr of Mutual Fund investment and 27 Cr of Cash in Hand as on March’20.

Source : Annual Report 2020

The Netherlands company valuation is ~8500 Cr as mentioned in previous post.

  • Closely held company as 4 Shareholders hold more than 12% of shares, and another 74.55% with Promoters.

Book Value : 1107 (Because of Mutual Fund Investment at FMV)
PE : 3.03
CMP : 164

Risk : The income of associate is only accrued income and might not even reach to this company. !!

Disc : Not invested.

Note : Since the demerged company is related to the forum and we do not have specific forum for Universus Photo, added my views in this forum.

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any views on how Jindal compares to some of ther packaging players like UFlex? Is the recent run-up just driven the stake sale news or you think there is something else at play? Limited research coverage on the stock hence not able to get an initial view on how the business is tracking. Any views will be helpful.

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Do they have (UPIL) have future plans??

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4 May 2022

A list of stock with high ROCE was created for analysis.

Average return on capital employed 3Years > 20 AND

Market Capitalization > 500 AND

Market Cap to Free Cash Flow <10 AND

Market Cap to Free Cash Flow >0 AND

Debt to equity < 0.5

I revised this query further by adding one check for 3 year average cash flow. Result was so miniscule that I had to drop that idea.

*AND Market Capitalization / Free cash flow 3years 3 < 15

This query gave a list of 26 stocks. on first glance analysis looking purely at few basic parameters, some of these stocks were selected for further analysis. After Antony Waste, this stofck is the second one from that list which I am analysing.

At Market Cap to FCF ratio of 6.86, Jindal polyfilm is best in industry. It has shown a healthy profit growth of 29% in last 1 year, although that is one of the lowest in industry.

At 850 Cr. debt, it is sitting at a debt to equity ratio of 0.27, which is comfortable.

However key lies in last year trend. There was an exceptional growth in revenue, cash flow and ROCE.

Even if it is able to maintain 1100 Cr operating cash flow (same as FY21) with 500 Cr of fiixed investment, it is priced at 8 times of FCF. This pricing leaves a safety margin of 20% even at 0% growth. With even 5% growth it gives a safety margin of 45%. Big question is - whether it will be able to survive even at current cash generation levels.

To be explored further

  • Why there was such exceptional growth in FY 2021. Lockdown and increase in eCommerce might be probable reasons.
  • Past history of capital allocation and why so many merger demerger happened. SEBI invetigation also needs to be explored further.
  • Brookfield investment - how will it impact current business.

6 May 2022

Annual report does not give much of an idea about future prospect of this company or industry. Key growth driver is increase in income levels and demand for packaged foods. Lesser penetration of packaged food in Asian market creates an opportunity. Company is well established leading player in the industry and claims to be a low cost player. Growth in eCommerce will definitely help the company.

On the other hand supply chain disruption and continued high crude prices are dampner to margin. Higher cost might force lower consumption from end industry although this needs to be explored further. Food industry might be able to pass cost increase to customer and importance of packaging might be high enough not be tamper with. Fragmented nature of industry is also a serious threat to margin and bargaining power of Jindal.

9 May 2022

Jindal Polyfilm is flagship company of Jindal Group. Group is diversified in various sectors.

  1. Pipes (Jindal India)
  2. BOPP and BOPET Films (Jindal Polyfilms - Indian Company + Jindal Films : Overseas entire international acquired business from Exon Mobiles)
  3. Power (Jindal Thermal Power, 2 units of 600 MW)

Overall history of company can be read at http://www.jindalgroup.com/the-group/milestones.

BOPP and BOPET is used in variety of products for packaging. Food, medical, electronucs and many other indutries. I understand these application superficially and not very clear about exact differenciation. Details can be looked at BOPP Uses and BOPET Uses.

Red flags for this company is

  • Biggest read flag is acquisition of Exon Mobile business under Jindal Films. It was controversial and unfair to minority shareholders, least to say. Basically 49% of business was grabbed by relatives of promoters at a meager sum of 34 lacs. Details can be read here. This raises a lot of doubt about promoter’s ethics.
  • Overall share holding is compplex with cross holdings and % share distrbution. Though I have not done deep research, but more I investigate more complex it seems.

Valuation

Polyfilms is a comodity business. Recent growth in eCommerce and Home Delivery has undoubtedly given a boost to industry. Last year was spectacular in terms of growth and hence cash flow. Based on which comany is available at 6.5 times.

However if we consider last 3 years cash flow, company is available at 21.5 times of FCF. So enttire valuation lies of fact that whether company will be able to sustain current cash flow or not. On superficial level, there investment of 200 Cr. last year seems low. However revenu and hence cash flow from operation should sustain considering growth in packaging requirement. Hence FCF of approx 400-450 Cr seems likely. Which puts marllet cap to FCF at 10 times, not very lucrative for commodity business but neither pricey.

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More reaserch needs to be done to understand market future outlook and company position to sutain these cash flow levels. However I am inclined to give it a pass considering past promoters behavior and not so lucrative pricing of a commodity business. Will keep this under radar for further valution correction.

Details at which I am leaving this company are as below.

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