Kiri Industries: Loan reduction and demand surge

That’s why

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Try chatGPT next time.

Encumbrance and pledging of shares are related but distinct terms often used in finance, particularly when dealing with shareholding restrictions or obligations. Here’s how they differ:

  1. Pledging of Shares

Definition: Pledging of shares is a specific type of encumbrance where shares are used as collateral for a loan or other financial obligation.

Purpose: It allows shareholders, particularly promoters, to raise funds while retaining ownership of the shares.

Mechanism: The shares are “pledged” to a lender, and the lender has the right to sell these shares if the borrower defaults on the loan.

Control: Pledged shares generally remain with the shareholder, but they may lose some control rights if they default.

  1. Encumbrance of Shares

Definition: Encumbrance is a broader term that refers to any claim, restriction, or liability attached to shares that limits the owner’s ability to transfer or sell them freely.

Types: Encumbrance includes pledging, but it also covers other restrictions like liens, mortgages, and legal claims that can restrict share transactions.

Purpose: Encumbrance serves various purposes beyond just collateral for loans, including legal claims or contracts that may limit share control.

Flexibility: All pledged shares are encumbered, but not all encumbered shares are pledged. Encumbrance may arise from other circumstances, not just loans.

Summary

Pledging is a form of encumbrance specific to using shares as collateral for debt.

Encumbrance is a general term that includes pledging but also covers other legal restrictions that may impact share transferability.

Chatgpt often gives surface level information or it can be wrong in some cases. Asking here helped me realize that there are rules in place to make promoter go this route.

Q2 Investor Concall takeaways -

  1. Company is expecting (600+10(legal fees reimbursement)+60 to 100mn(interest) = $710mn roughly around 5600cr from Enbloc sale in March 2025
  2. As the company is expected to utilize half of the amount for capital commitments towards copper project, management is open for dividend for the remaining amount as management acknowldeges that shareholders need to rewarded for waiting 10 long years of no performance.
  3. Copper project is going to have 200000 tn in phase 1 and 300000 in phase 4) Revenue guidance at current prices would be 16000 cr for the phase 1 with EBITDA margin of 10-12 % (huge)
  4. Fertilizer is not a separate segment but the by product of copper plant.

Fingers crossed!

Disc - Invested as a special situation after promoter preferential issue.

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I think I missed the dividend part. If dividend part is true then this is damn cheap.

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Have been tracking the stock since 2020 and these are some of my thoughts on why the price has moved now. It was known since 2018 that Kiri is entitled to minority operation proceeds from Senda.

The share moved for a couple of days whenever they won in any court but then instantly came back down as winning didn’t mean that senda will pay.

Then in November 22 to Jan 23, when Senda didn’t even pay some small litigation fees which were due. the share crashed as the market gave up all hope of Kiri Industries getting the money.

So, now what has happened suddenly that the market is now again showing confidence of KIL getting those 5000 crores.

  1. The preferential issue by the promoters : I have been hearing the promoters since past 4 years saying that they want to buy the shares but they don’t have the funds, they are trying to arrange funds. And now, suddenly they found some 500 crores lying somewhere. It was always thought that the promoters will invest only when they will be sure of getting the 5000 crores. They have taken 15% shares of the company at 2000 crore valuation now as they are now sure of getting the 5000 crores. there were no outsiders in this pref issue. No rights issue. Just preferential for the promoters. More than 28% of these warrants have already been converted.

  2. USD 130 million Judgement funding.
    Why will a Fund give a Rs. 1000 crore loan to a KIL, whose only real asset is his share in DyStar. I know that the fund has taken some guarantees of Promoters, but that is just a formality in my opinion.
    They have given this funding because even they are now sure that KIL is now on the verge of receiving the Payment.
    In the Worst possible situation, even if Senda wins the appeal and no priority payment is given to KIL. Still 37% of DyStar sales will come to KIL.

  3. The final stages of the Case.
    Kiri has won in Supreme court, kiri has won execution order in SICC and now the only point of debate in Supreme court is whether Kiri should receive priority payment of 5000 crores or it should only receive 37% of the total buyout proceeds.
    There is no other dispute now, DyStar will be sold, Non binding offers will be received on 22-11-2024.
    The process should get over in the First half of Calendar Year 2025.
    The market believes that now there aren’t many legal options left with the Senda group.

  4. Only 50% of the proceeds will be invested into the new business and the rest 50% is still up for discussion. There is a chance that a special dividend or buyback might come as per the latest concall.

No doubt there is still a big big risk of Senda taking some more legal options and dragging it further. But that will always be there till the day the money is actually in KIL bank account.

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The only negative thing now is they will invest half of the money to some random business (total waste). However some one mentioned earlier that they will receive 1000 rs a share from Dyster. So leaving 50% from that 500 rs is still free of cost with a 537 rs share. I bought the shares solely because promoters have bought a huge chunk of the company with preferentials.
I had no experience of special situations. Hope this one will do good.

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I think we must think twice before passing off our opinions or assumptions as facts. The promoters have suffered along with the investors since 2010:

  1. They pitched a turnaround opportunity to Longsheng and were actually able to turn it around. Then they saw it fall flat as Senda refused to listen to them on any part of their business
  2. Their current dyes business suffered not only due to industry dynamics but also because a lot of their energy and money had to be spent fighting out this case in Singapore
  3. All this while they’re seeing huge bull markets come and go, new industries and cycles playing out
  4. They also don’t want to stagnate and want to grow their business which doesn’t happen if you pay off everything as dividend. They themselves would become much richer if they had paid off the dividends and started another company
  5. They have roped in experienced professionals to invest in sunrise sectors as any businessman wanting to diversify should
  6. Copper production anyhow involves a lot of chemistry which they have experience in + utilizing the SO2 released to make fertilizers
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A nice read:

Basically with their capex, 50k crore revenue is very difficult. Hindalco’s copper business does the same revenue at double the capacity, so most likely Kiri is stretching the numbers

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This has some excellent points. The management is giving a story but execution will be key. This is not a going to happen unless we have a series of improbable things falling into place.

Having said this, the injection of money and it’s investment will give some value. Let us say it is revenue of 10000 crores with 6% pat after 4 years. That means profit of 600 crores with an EPS in the range of 100-120. CMP is approx 620.

I think it can do well in this case too. Just my opinion of a bad case scenario.

Disc - Allocating a very small portion as of now, and will increase as and when these pieces fall into place.

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Attended Kiri Ind concall to understand about the Dystar sale stuff (pardon me if I am missing something - I am a noob here)

Mgmt sounded pretty confident and also mentioned in opening remarks that they will be releasing something (binding term sheet) by March and they are advanced stages of sale discussion.
Also there were a couple of analysts who questioned around capital gains and utilization of that money etc which reinforced the confidence that this time things are actually working in their favour.

I was hoping to ask them the question - "So we seem on track to complete the sale and money realizing in our accounts by Q3FY26 (since court had kept deadline of Dec 2025) " but I didnt get the opportunity. But this looks achievable.

Anyone else who can share their understanding of concall wrt this matter?

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