Jyoti Resins & Adhesives Limited (with bloated reserves)

AmarP · January 27, 2025, 1:34pm

Hi Pragnesh, Interesting points, thanks for summering here.
I was invested for approx an year and sold this in Q2-2025 because of following reasons :

Revenue & PAT is almost flat in the last 4-5 quarters, no direction form management how they will grow it further.
They have a lot of free cash but don’t know how utilize it for next level of growth hence scaling up a problem.
The other reasons may be the overall demand which is muted but good business do some thing different to go an extra mile in difficult times.

Disc: No suggestion just information

i_mustafa · January 28, 2025, 3:49am

Names are not available as per BSE disclosures:

Arka · February 4, 2025, 8:04pm

Individual investors bought shares worth 40.16 cr at 1255/sh via Bulk Deal

Vineetjain111 · February 16, 2025, 2:40am

Day one of tracking this company.

Quick question: From the operating cash flows, what is the ‘Other working capital items’ on the cash flows statement on screener amounting to 35cr in 2023 and 27cr in 2024. Are these the above mentioned ‘unpaid expenses’ as it is not classified under receivables, inventory, payables, advancws or borrowings?

Pragnesh · February 16, 2025, 12:38pm

Non-cash expenses are added to operating activities when calculating cash flow because they were previously subtracted from revenue to calculate profit

Non-cash expenses are expenses that are recorded without an actual cash outflow. Examples include depreciation, amortization.
When calculating profit, non-cash expenses are subtracted from revenue.
When calculating cash flow, non-cash expenses are added back to profit to get an accurate picture of cash flow.

*Non-cash expenses are recorded in the income statement, but are excluded from cash flow statements.

Vineetjain111 · February 16, 2025, 3:35pm

Simplifying the question. Other working capital items subtracted from operating cash flows below

Pragnesh · February 17, 2025, 5:32am

Basically , i am medico person, though i will try my best to explain you

1…Depreciation

=When we calculate net profit ,we deduct depreciation from revenue .However actually we are not losing any cash(non cash expense). So depreciation is added back for calculation of operating cash flow.

2…Receivables ,inventories

=While calculation of net profit, these are not considered. However, they affect actual cadh flow from operation.

=Lets take an example.

Suppose,

A …We have revenue of Rs 10,000 for selling some goods. Cost of goods is Rs7000

B…We have receivables of Rs 1000

C…We have unsold invenoties of Rs 1000

So

A…We have net profit Rs 3000(10000-7000)

B…But we dont have actual 3000 cash

Actual cash flow from operation will be Net profit-receivables-inventories=1000

3…Payables

=Sameway payables will be added to profit for calculation of operating cash flow.

In short, depreciation will affect net profit
While working capital(receivable, payables, inventories) will affect OCF(Operating cash flow)

And for calculation of OCF, receivables and inventories are substracted form operating profit

While payables and depreciation will be added.

Hope ,this will help you

Krishna_Kumar · February 17, 2025, 12:49pm

Company has taken changes in current and non current finacial assets and liabilities in Working Capital

Change in Bank Balance

Changes in FD. This should have been in Cash from Investing Activities
Major Changes in 55 cr increase in Bank Balance - 26.5 cr decrease in FD
Hope this answer your query…

rkirana · February 22, 2025, 3:30pm

This is a multibagger in 2021 - 2025 where price is almost 6X
Sales is 2.5 X and has been accompanied by a 3X of the OPM from 11% to 33% - is this margin expansion temporary or permanent could determine the future of this stock

Huge drop in raw material cost makes me stay away from this stock.

Also, what is causing increase in sales when company has done almost no capex in last few years?

Swadesh9819 · February 23, 2025, 6:00pm

If my memory supports me, they did increase their capacity in last few years.

“Huge drop in raw material cost makes me stay away from this stock.” Am I missing something here, drop in raw material cost is considered favorable, right?

rkirana · February 24, 2025, 8:28am

Raw material cost is mean reverting and if raw material cost increases, margins could go way down and stock can tank

kanvgarg123 · March 12, 2025, 4:30pm

A note for self
After a long time, a consumer brand came to my radar with P/E < 20 and ROE >25 and consistent sales growth.

The thread has raised three major concerns (same reason for which I never invested here)

Growth in Current Liabilities - The growth in current liabilities (loyalty points) have stopped. In the recent concall, management clarified that Redemption is equivalent to the Addition in points and hence current P&L is reflective of loyalty points. Please note that company adds loyalty points as revenue and subsequently adds cost for the same for accounting. [Ideally I would have liked them to expense the loyalty points out from P&L]
KMP Remuneration - KMPs have maintained their remuneration at maximum permissible limited i.e. 10% of annual profit. I think current remuneration i.e. 7.6 cr is fair given that CEOs of company themselves get >2 cr type salary and here we have full time promoter and his committed son.
Realty of Assets - Since I have not visited the company factory, I am not sure how can I confirm if the assets are real? My only way of triangulation was googling about the product. I have generally seen positive reviews of the product and moreover product is present on the shelf. It is not like Manpasand beverages where sales was growing but there was no visibility of product.

Some Positive Points

Geographical Expansion - Company is now expanding in the Delhi and UP market. My limited understanding on North is that people are very price conscious especially when you go to mass market segment. Also, UP has more individual houses where influencer is generally the carpenter and Jyoti’s main model is to ensure that carpenters sell its product. As per the concall, they are seeing good growth in these markets.
Reduction in WC cycle - Management has confirmed that the reduction in credit cycle in mature markets has happened and currently they give 80 days credit to them and 120 days credit in newer markets. [This is very normal for any business trying to expand and building new partnerships]
Self Funded Growth - Given the higher ROCEs and 120cr+ in the bank, company should have enough capital to grow at their desired 20% volume growth rate.
Addition of Taparia Group as SH - Taparia Group is one of the most respected groups in the markets. They are the founder of Ananta Capital and were one of the earliest backers of PG Electroplast where they must have made 20X in a matter of 4 years. This adds trust that there must be some operational Due Diligence done and hence reduces the chances of fraud
6.Competition - Simple google will reveal that there are just 3-4 brands in this market namely Fevicol, Jivanjor, Euro 7000 and Astral. Mgmt claims that white glue is a 7500 cr growing market and even if Jyoti is able to garner 10% market share, revenues can triple easily. Also, it wouldn’t make business for Fevicol to reduce price since loss for them would be higher if they do that to maintain market share.

Concerns

Realty of Cash - After Gensol’s debacle, I don’t have clarity of the genuineness of the cash with the company. Also low dividend doesn’t help. Management guided that they would need cash for expansion but at current ROCE numbers and capex requirement, they should be giving out atleast 40% type dividend. Someone in the call raised a concern about the Auditor, however management mentioned that current auditors are partners with the third largest auditor in Germany (I verified that) and they are comfortable with them.
Moat - I think Birlas and Ambanis have clearly demonstrated that most of the consumer brands don’t have a moat with Birla Opus, Birla’s entry in Wire segment and Campa Cola. So, if any of the above player enters the market, the company would face a tough time.

I would love to know some counter views.
[I will keep updating this post as and when I gather more info]

Disc - Invested in Last 30 days

Deepesh_Punetha · April 22, 2025, 4:02pm

Adding to the list of red flags, the company has 4Cr in buildings and 5Cr in plant & equipment and does 280Cr of annual revenue. (70x the value of buildings and 56x the value of plant and equipment). The above ratios for Pidilite are 8x and 6x.

I haven’t come across a factory constructed for 4Cr which can generate that kind of revenue or a manufacturing equipment which has a payback period of <1 month.

myloginid · April 22, 2025, 6:27pm

Once a thief, always a thief, the promoter was barred from the market

https://www.sebi.gov.in/sebi_data/docfiles/17563_t.html

nishanth_cheruku · April 23, 2025, 4:47pm

Can you help me understand here. How did you figured “the company has 4Cr in buildings and 5Cr in plant & equipment”. But from their reports, i see “property, plant and equipment as 48 crores”.

shubham_agarwal4 · April 23, 2025, 6:51pm

I see on screener
Land - 27.79, Building - 4, Plant machinery - 5, Equipments - 11.53
Totalling to approx 48cr

Deepesh_Punetha · April 24, 2025, 3:28am

You can refer to their FY’24 AR. Most of the fixed assets is just land.

aainahatredtillend · April 24, 2025, 9:42am

Hello @myloginid

I went through the money life article and as I understand there are two separate allegations being made:

The first is that the share price was rigged and that the promoters somehow may be involved. Excerpt below:

The stock is quoting at a price-to-earnings of 59 times. Who is involved in this blatant price-rigging? In April 2003, the promoters were debarred from the capital markets for manipulating the price of Jyoti Resins. However, the debarment was just for a period of one year. Thanks to lax regulations, price manipulators are at it again.

I did not find any show cause notice or formal investigation by SEBI into allegations of price rigging in 2016 as this article insinuates.

The second allegation is that the promoters pledged all their shares to a cooperative bank in 2015. Excerpt below:

In May 2015, the promoters pledged nearly their entire stake, 35% of the total shareholding, to Kalupur Commercial Co-operative Bank for a loan. Coincidentally, since then, the share price price has moved up substantially

So there was a formal investigation launched by SEBI about whether the promoters did disclose about this to the exchanges and that investigation concluded and no wrongdoing was established. The SEBI order number is EAD-2/DSR/JAK/615-619/2017. However, I did find it strange that promoters would pledge all of their stake. I couldn’t find an answer.

The good thing is that the promoters actually increased their shareholding from 25% in 2011 to 41% in 2018. Read the post on this thread from April 12, 2019, 4:41pm which confirms this.

Pragnesh · April 24, 2025, 9:55am

As per my scruttlebutt with employee(my relative) and distributers, promoters are honest.

aainahatredtillend · April 24, 2025, 10:39am

Hi Deepesh,

This is a good question. I have a counter opinion. Happy to be corrected.

The company is a formulator. In other words they take some raw materials and mix them up and then sell them via distributors and retailers and so on.

Now, for the sake of this discussion, I am going to focus on plant and equipment to revenue ratio.

For FY24:
Gross Block for Plant and Equipment: 5 crores
Revenue: 265 crores or 53x
Source: Page 135, 154 AR FY24

So my opinion is that they have such good ratios because their equipment cost and electricity cost is miniscule. If you check electricity expenses in AR FY24, they are just 68 lakhs.

For sensing equipment cost, I looked at an environment clearance request that they had made to the environment ministry.
https://environmentclearance.nic.in/writereaddata/Online/TOR/10_Mar_2022_16112663379237697Pre-Feasibilityreport-04032022.pdf

On Page 2 of this report you can see that they are proposing to go from 1,500 MT/month to 5,000 MT/month so they are tripling capacity and proposed investment is only 2.6 crores. Screenshot below:

Also, unlike Pidilite they only manufacture one thing i.e. white glue. Pidilite manufactures many different types of products. Adhesives and sealants make up just 55% of their revenue (Page 33,47 of AR FY24). My guess is that their manufacturing complexity is a lot more as compared to Jyoti and hence I think it is not an apples to apples comparison.

The kind of steel reactors that Jyoti uses are not complex sophisticated machinery. It is very easy to produce the same product at the same quality. Their moat I believe is instead their distribution.

Disclosure: Invested