Have been reading through annual reports of Kilburn Chemicals which is in a niche business of manufacturing TiO2 - a universal pigment used almost everywhere and new uses of which are being discovered. The company has sold off all its assets. It is using the gains to setup a new plant in Gujarat.
I find the Market Cap of Kilburn chemicals is only ~22Crore but it has made 30+ Crore profit on sale of its plant in Tamil Nadu(Aug 2011). News reports read 110 crore but their cash flow from investing only shows 71 crore. Plus the company has a 6 crore tax dispute pending with the Income Tax dept, the same year in which it sold off its assets. Do you sense any accounting mistakes in their financial statements? The company now sold off its wind mills in Tamil Nadu for 15 Crore. The promoters have good history of setting a TiO2(niche industry) plant from scratch and ramping up capacity with little capital.
But soon after selling off assets, the promoters have been trading in commodities and have 11 crore trade receivable over the past 3 years(stuck because of NSEL scam). Why do companies trade commodities when they are in the business of manufacturing chemicals? The company seems very confident about recovering its money from NSEL but what are the chances that it has to write off this position in coming years ?
The stock is trading really cheap(Rs 26 PS) and promoters have infused money(~14 crore) in the form of preferential shares and convertible warrants at Rs 39 PS. Is it a value trap?
Disclosure: Invested.
Regards,
Saqib