Jubilant Industries Ltd

Stock Opportunities
81

Bharti Walmart to raise Rs 500 cr from banks

Bharti Walmart, a joint venture (JV) between Sunil Bharti Mittalâs Bharti Enterprises and the worldâs largest retailer, Walmart, plans to raise Rs 500 crore from global banking majors such as Citigroup, JP Morgan Chase, Deutsche Bank and BNP Paribas, to fund its expansion plans, according to sources in the know.

It had earlier said it planned to set up 10 to 12 wholesale cash and carry centres in 2012, which would generate employment for 5,000 people. According to estimates, each such centre requires an investment of Rs 50-60 crore. At present, Bharti Walmart has 17 stores across the country.

A company spokesperson confirmed talks were on. âThe money is being raised for investing in building of an efficient back-end infrastructure and for our Best Price Modern Wholesale Cash and Carry store roll-out programme,â he said.

India allows 100 per cent foreign ownership in wholesale operations and single brand retail. Germanyâs Metro, French company Carrefour and UKâs Booker are the major players in the Indian cash and carry market, besides Bharti Walmart.

âIt shows the market is maturing and banks are gaining confidence in the sector. Some level of equity investments have happened in the JV and it thought it is time to leverage. It also could be that the domestic partner may not want to put equity and a $100-million debt is not a big deal for Walmart,â said Harminder Sahni, founder and managing director of Wazir Advisors, a business consultancy.

In December, the government put on hold plans to open the multi-brand retail sector to foreign chains due to political opposition.

However, finance minister Pranab Mukherjee said in his 2012-13 Budget speech that talks were on with several states in an effort to reach a consensus on the issue.

82

Hi,

Me and my family had a visit to Total Mall at Madiwala Jn, Bangalore. It is definitely not as posch as the other malls like Forum, Central etc in terms of parking facility, space, general look and feel etc.

But there was a huge crowd inside. After going thru the first and second floor we were convinced that the cash registeres are ringing big time. They seem to be targetting lower and middle class customers with VFM offerings unlike other malls. This is more like a commercial street with umpteen small stalls along with usual mall stores. And they have CCD and Macdonalds too.

It would be interesting to compare their margins with central mall if possible? Looks like a volume player.

Cheers

Vinod

83

Hi Vinod,

Good to see you visiting the place personally…there is nothing better than having a firsthand experience of offerings of our researched stocks…On similar lines I have even requested on LGB thread to have feedback of respective area auto spares dealers, service centres rgdg. Rolon chains/ Rolon Chain-Sprocket kits to have a feel of LGB’s strengths/weaknesses wrt. Replacement market.

Now, coming to Total Mall… yes its model is completely different from other mallswith mall-cum-hypermarket format…mall’s enetertainment and branded shops options being footfalls attractor and hypermarket’s discount retailing concept being cash generator…Margins in discount retailing format will always be lower as it is a scale-based business but Total can achieve profitability at much lower scale than its peers because of locally-focussed business model.

Rgds.

84

My Q4FY12 as well as FY12 estimates for Jubilant Industries Ltd. :

( fig. In ` cr. )

Q4FY12

FY12e

Revenue

IP

ACP

Retail

50 - 54

76 - 82

110 - 118

198 - 202

396 - 402

415 - 430

Total

236 - 254

1009 - 1034

EBITDA

IP

ACP

Retail

5.5 â 5.8

6.8 â 7.5

(9) â (11)

21.5 - 23

43 - 45

(32) â (35)

Total

2.3 â 3.3

32.5 - 33

85

Agri segment has room for a positive surprise this qrtr. as based on the recent data released, there seems to be great pick-up in SSP sales in Feb-March…

Also, in the latest presentaion of Jubilant Bhartia Group, Jubilant Industries is given a good prominence wherein its placed before Jubilant Foodworks just next to flagship company Jubilant Life… The Retail business is now included in Jubilant Industries and the company has moved on to become Top 2 SPVA producer of the world.

Link to latest presentation - http://www.jubilantbhartia.com/jubilant-bhartia-group/jubilant-group-presentation-march2012.pdf

Rgds.

86

Jubilant Industries Ltd has informed BSE that a meeting of the Board of Directors of the Company will be held on May 09, 2012, inter alia, to consider and approve the Audited Financial Results of the Company for the year ended March 31, 2012 and recommendation of dividend, if any.

87

Hi Mahesh,

It looks there are too many sp items due to the restructoring and unimpressive nos from retail.

Like I mentioned the low-price strategy followed in their stores could mean substantial improvement in volumes is essential for retail arm to give good profits.

Your analysis awaited. I have exited this counter with a decent profit.

Cheers

Vinod

88

The performance is very dismal, especially on Retail front where revenue is far below expectations while EBIT loss is far higher than estimates… Management has to come out with detailed vision for this company at its earliest…

I am holding on to my positions as I feel the CMP is not the right price to sell.

look… one thing is clear that weak pms guys as well as retail ones will first press panic button

now, to what extent this panic lasts will depend on how strong the selling is and how quick the buying comes

for buying to emerge either the promoters will have to buy and thats why they might not be coming out with any clarity or they need to come out with some clarity so that strong pms guys and instituitional inv. can chip in

One important thing to note in FY12 results is non-retail businesses, they have turned out an exceptional performace with great EBITDA margin expansion in polymers business… This makes me think that if retail business would not have got merged, only the non-retail businesses would have given it a valuation double than current one.

Will cover all aspects in my detailed analysis soon…

Feel free to get back to me in case of any query.

Rgds.

89

Hello Mahesh,

As discussed in TED too, the first quarter after merger will have many one-off write offs and other expenses.

So it will be better to access the scenario excluding those one-offs. What bothers me is the high amortization of goodwill, why would the company pay high goodwill in the first place while merging with another group company.

Also only a part of the actual paid rental is being considered in expenses. The main botheration is the negative growth in retail sales (QoQ) and very high finance costs.

With stable cash flows from non-retail, the finance cost should moderate going forward.

The price recovery and volumes were good in today’s trade, however delivery in NSE was less than 15% signalling lack of buying interest and further downside for the stock.

Given the promoter pedigree and their retail foray with Jubilant Foodworks, it will be unfair to judge the promoters so early. However we need strong clarifications ASAP.

Awaiting your detailed analysis.

90

Hi Rudra,

You are right in your saying that this is the first consolidated results post merger so wrte-offs and clean-ups are natural… However, the performance of Retail business is very dismal while, on the other side, performace of non-retail business is exceptionaly good…

Goodwill is created in almost all mergers so its not a big thing and it will only save the tax in the long run…The goodwill is to be amortised over 10 years against my expectation of 5 years…

Rgdg. rent part, still clarity has to emerge, most probably will emerge in AR2012 as Jubilant group companies’ ARs are one of the most transparent ARs I have ever seen.

Debt is at manageable levels at present which is a good sign…if Equity funding comes through within 1HFY13 then profitability of retail business could improve significantly…

One thing to note here is the fact that Company had started spending heavily from Jan2012 onwards on marketing which I had even mentioned in my Q3FY12 update wherein I had increased the expected loss of retail business… However the effect of marketing on revenues is still not fully reflected which is the major reason for increased actual loss of retail business. Unless the scale of operations is increased there is no way the retail business could attain profitability… Hence, the company is in urgent need of opening more stores which should start sooner rather than later…company went short of opening 1 store because of regulatory issues in FY12… It has plans to open 3 stores in current fiscal FY13… For this atleast an amount of 100-115 cr. will be required… Once this rolout is complete, scale could rise very fast which will aid in improving profitability.

This company is clearly for long term and not for short term…

With rgds. to trading pattern of yesterday…it has a very low floating stock and dry-up of deliveries at lower rate post negative news is a good sign rather than bad sign…If you closely observe the trading pattern of yesterday then its evident that below 200 noone is willing to sell which is a good sign… Stabilisation of price has already taken place yesterday as it recovered sharply from 190 levels and stayed for most part of the day at 205-212 levels…Monday’s close above 200-210 will confirm the stabilisation and from current rate the downsides are very limited.

Management clarifications are utmost necessary but it will take slight more time… The new team of Videh Jaipuriar and Raman Mangalorkar will atleast need 6 months and most of the details should be available from AR2012 of the company in July.

Feel free to get back to me in case of any query.

Rgds.

91

Hi Mahesh,

Read that Hypercity, hypermarket owned by shoppers stop group, is still loss making. Spar is splitting from Max due to strategic issues.

The big worry for Jubilant Ind is that their other businesses being really good wont help if the cash is going to be deployed in a loss making retail bus.

Any idea as how many stores and how much revenue is required for retail to breakeven? Could we then have a calculated guess as to how long it will take?

Cheers

Vinod

92

Yes Vinod… Hypercity will take atleast Fy15 to breakeven while Landmark-Max are parting ways because of national expansion…

For Jubilant Ind., 800-1000 cr. scale will atleast be required to achieve breakeven… Most worrying part for me is still no announcement on raising of funds as in retail business, time elapsed is very hard to recover… 2 stores were planned to be opened up in fy12 out of which 1 is opened while 1 is held up and 3 stores were planned to be opened in fy13 for which no clarity is still there… Its high time now that management comes out with some sort of clarity and stops treating Jubilant Industires as step-child of the group…

If in current year the scale doesn’t get past 500-550 cr. the company will be in real problem…

Rgds.

93

Hi, are they waiting for FDI in retail to partner with a big foreign player? Any hints on that front of some intial talks or feelers?

Cheers

Vinod

94

Nothing… management is still tight-lipped… but fdi in retail is out of question for jubilant, as said by me before also, since its in a bjp-ruled state.

Rgds.

95

On 9th May 2012, Jubilant Industries Ltd. announced its results for Q4FY12 (12’Months’FY12). This was the first time the merged Retail business financials were announced post merger. Although non -Retail businesses performed exceptionally well, way ahead of estimates, however, Retail business spoiled the entire picture with the numbers turning out to be way below estimates, especially on Operating Loss front. Given below are the highlights of the results :

  1. Consolidated Revenues (including Retail business) for Q4FY12 came at Rs. 247.51 cr… For 12’Months’FY12, consolidated revenues (including Retail business) stood at Rs. 995.81 cr… It is worthwhile to note here that in the declared Results, subsidy income for opening stock of SSP fertilizer and raw materials is not included due to DOF’s Office Memorandum dated 11th July 2011 which is being contested by the industry. In absence of such directive, revenue would have been higher by Rs. 13.58 cr. for 12’Month’FY12 to stand at Rs. 1009.39 cr.

  2. Consolidated EBITDA Profit (including Retail business Loss) for Q4FY12 came at Rs. 2.79 cr… For 12’Months’FY12, consolidated EBITDA Profit (including Retail business Loss) stood at Rs. 11.76 cr… It is worthwhile to note here that this Results does not include subsidy income for opening stock of SSP fertilizer and raw materials due to DOF’s Office Memorandum dated 11th July 2011 which is being contested by the industry. In absence of such directive, EBITDA Profit would have been higher by ~Rs. 9 cr. for 12’Months’FY12 to stand at ~Rs. 20.76 cr.

  3. The key highlights for the year was the strong performance of company’s** Performance Polymers segment** which **grew its revenues by 32.5 % YoY **& a stable performance of company’s Agri segment inspite of uneven monsoons affecting the entire industry. Performance Polymers segment expanded its Operating Margins by 164 basis points YoY which is significant considering the domestic as well as global slowdown the economy has faced in the entire year.

  4. The growth in ‘Performance Polymers’ segment (which includes Consumer Products-Jivanjor Brand , Food Polymer-SPVA and Latex) can be largely attributed to better capacity utilisation of the expanded capacities, healthy order-flow in Food Polymer segment as well as successful new product launches in Consumer Products segment.

  5. Company’s Retail business numbers were announced for the first time post merger and they turned out to be very dismal. Retail business attained a Revenue of Rs. 359.12 cr. for FY12 which translates to a YoY growth of just 14.3 % which is very low considering the fact that one new Mall-cum-Hypermarket was opened by the company in July’2011. In other words, it simply means that compay’s Retail business has turned out almost flat-to-negative SSSG (same-store-sales-growth) which doesn’t augur well for the long-term sustainability of the business when seen in the backdrop of the small scale of operations, 2nd largest marketshare company enjoys in Bangalore as well as aggressive promotional campaigns that it has undertaken since January’2012.

  6. Operating Loss for Retail business stood at Rs. 98.59 cr. v/s Rs. 50.05 cr. of last fiscal. Although the current year’s figures include a goodwill amortisation expense worth Rs. 12.37 cr., but, even excluding that, an Operating Loss figure of Rs. 86.22 cr. doesn’t speak highly of Retail operations of the company. Its worthwhile to note here that after cotinuous improvement in OPM of Retail operations since inception, this is the first time company has suffered heavily on Operating front and the main reasons for the same could be the aggressive promotional campaigns not turning out the expected volumes as well as rising competition requiring aggressive discounts to be offered on products.

View Post Q4FY12 (12’Months’FY12) Results :

Without discussing the nitty-gritties, let’s come straight to the point. Post Q4FY12 results, if I am an investor, what status I will assign to Jubilant Industries Ltd.

Does it deserve a SELL now. The reply will be a clear NO because of :

  • the prevalent cheap valuations,

  • the group involved (Jubilant Bhartia),

  • Non-Retail businesses have turned out an exceptional performance in FY12.

So, does it deserve a Buy now because of the 40 % correction in stock-price post Q4FY12 Results. Again a clear NO because :

  • the correction in overall markets (due to micro and macros) have provided ample opportunities elsewhere which are more stable and certain,

  • Retail business has turned out a disastrous performance in FY12 with almost flat-to-negative SSSG,

  • there has been no proactiveness on management’s part to open new stores which are very crucial to raise scale of operations crucial for improving OPM,

  • a step-child behaviour adopted by the group towards Jubilant Industries.

To conclude, the company at best deserves a Hold now with close monitoring of critical aspects lke :

  • any fund-raising initiatives by the management, crucial will be the route, debt, equity, a mix, the extent of dilution,

  • the pace of opening new stores (2 stores were planned to be opened in FY12 out of which 1 opened in FY12 while 3 stores are planned to be opened in FY13 out of which 0 opened till 2’Months’FY13). This is the crucial aspect as if the stores are not opened up fast or any other initiatives are not taken to increase the scale of operations, then, the low scale will itself eat-up all the non-retail profits,

  • performance of non-retail businesses which turned out an exceptional performance in FY12 because of better capacity utilisation as well as clean-up of SSP inventory ahead of FY13,

  • AR2012 in which management could provide the vision for the consolidated entity as well as each of its businesses,

  • starting of any IR-initiatives by the management.

96

Hi Mahesh

appreciate your Lucid writing and analytics.

Rgds

97

Prima-facie View on Q1FY13 numbers of Jubilant Industries :

(1) Agri Segment has performed satisfactorily despite monsoon uncertainities. SSP companies had recently increased SSP fertilizer prices by more than 50 % which seems to have helped maintain revenue and profitability of the segment. However, coming 3 weeks are crucial as far as monsoons are concerned which will determine Agri segment performance in 2HFY13.

(2) Performance Polymers segment has performed exceptionally well with YoY 237 basis points expansion in EBIT margins on the back of 17 % increase in revenues. Company had taken ~30 % price increase for its end products during FY12 while key raw material VAM’s price declined significantly in 1HCY12 which has enabled significant inprovement in EBIT margins.

(3) Retail segment has again turned out a dismal performance with no improvement in Operating margins. Although EBIT margins have improved by 278 basis points YoY, but, the scale is a real issue which has remained almost flat YoY with a decline of 1.6 %.

Conclusion :

Step-child behaviour continues with Jubilant Industries with no new store opening in Retail Segment and no clear cut vision of future. I maintain my view that in Retail segment, especially Hypermarket, ‘Time Lost is Opportunity Lost’ as its a cash consuming business. I am surprised that company has still not initiated any steps to raise funds so that Retail business can be scaled up. Its not that once fund raising plans are announced and funds are raised, Scale-Up will start immediately â it will take its time and thats why the fund raising at the earliest is necessary otherwise stagnant scale of Retail segment will result in expanding losses because of weak economic scenario.

AR2012 will be key monitorable in case it gives sense of any future direction. In absense of any significant initiative by the management to get serious about the affairs of Jubilant Industries and considering the fact that the company’s share price has already taken a severe beating post FY12 numbers, downsides from current levels look maximum 15 % because of the group involved but upsides from current levels look almost impossible at 0 %.

98

Hi Mahesh, already 7% down. I feel they are waiting for the FDI announcement to expand to states which will adopt it. And a new gov in Karnataka is also not very far I guess :slight_smile:

Cheers

Vinod

99

I have sold

i think it is touching 52 week low

what will happen nobody knows?

100

Hi Mahesh,

As evident from the results, the cash-cows Agri Segments and Performance Polymers have yet again given a strong quarterly performance.

However, the main aims of merging with the cash-burner retail business viz. tax shield from retail losses and lower finance costs (use of cash from other two) is still not visible.

Despite making a loss of 6.89 Crs at the PBT level, the company has incurred tax expense to the tune of 3.15 Cr taking it net loss to 10.04 Cr. However excluding this tax expense. net loss of 6.89 Cr (Q1FY13) vis-a-vis 11.92 Cr (Q1Fy12) looks much better.

The finance costs for the quarter at 6.58 Cr is significantly higher than 5.53 Cr (Q4FY12) and 4.18 Cr (Q1Fy12). The benefits of merger should come through in these two fronts the earliest.

Also, in the retail space, most retailers are showing a slow-n-steady approach rather than going aggressive. Retail results at the EBIT level, shows a significant improvement as compared to Mar-12 and Jun-11 Quarters.

Since the current valuations are very poor, it is highly unlikely that company will come forward to raise equity funding at these levels.

What can be the possible valuation of the company considering the following case ?

Agri-business and Performance Polymers : Business-As-Usual

Retial : Slump Sale.

We need this valuation to effectively gauge the margin of safety and downside from current levels.

Disc: Long positions, deep in red.