ValuePickr Forum

Majestic Auto - An Undiscovered Real estate/Facility Mgmt Stock

Results are gonna come on 29th this month.
if I have missed any filter in the above post do let me know.

two wheeler companies are expected to do well in the coming months because people will prefer them over public transport

there is a good chance the value of Majestic auto holding in hero motocorp will increase from the present 221 crores. (assuming no shares have been sold during the March quarter).

disclosure: have sold almost 8% of my holding in majestic auto and taken initial positions in muthoot finance.

disclaimer : I am invested in majestic auto, my opinions may be biased

results are out . they are not comparable directly with last year because of land sale component last year.

consolidated revenue for the year is 79.14 crore.
consolidated pbt for the year is 23.63 crores. but due to reasons beyond my current understanding income tax expense is 44.53 crore . which results in an annual loss of 20.9 crores.
in the other comprehensive income section there are some more items which show a bigger loss which i am yet to understand.(these items are classified as not part of pnl statement)

Net cash flow from operating activities is 40.1 crores

long term borrowings have reduced from 207 crores to 173 crores resulting in debt reduction of 34 crores. no sizable short term debt.

it seems company has not sold any hero motocorp shares.
the reduction in investment value to 147 crores from 235 crores is because as on march 31st hero moto price was 1596.
now price is 2504 which results in a holding value of 230 crores of hero moto shares which majestic auto has.

the results have various aspects like the tax thing which i dont understand , i will get greater clarity once the latest annual report is released.majestic auto.pdf (1.8 MB)

it would be swell if other boarders shed light on the results as well especially the tax and the other comprehensive income part.

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This property, Majestic knowledge boulvevard located at sector 62 in Noida city was acquired for 73.2 crore in 2015 but is generating a revenue of 40 Cr and PBT of 25 Cr.

Assuming 10% rental yield,
Asset Value = Revenue / rental yield = 40/0.1 = 400 Cr in 2019.
Why asset was sold for 73 Cr when real value was 250 Cr in 2015 adjusting for appreciation in asset price ?

Am i missing something ?

i havent been able to get any info about the terms and conditions of their purchase of emirates tech pvt ltd which owns knowledge boulvevard.
the purchase price does seem low.
old interview link

other unknowns

  1. the 43.2 crore tax expense year ended march 2020. no idea where this huge tax epense came from. there is no deferred tax liability in last years consolidated balance sheet.
    there is a deferrred tax asset os 21.3 crore and other non current tax assets of 7.16 crore this year
    here is a deferred tax liability of 30.2 crore this year which was nil last year
    the only good thing is the business is definitely legit because of all these taxes paid.

  2. in the other comprehensive income section , items not classsified to p&l statement is another -88.35 crores(negative 88.35 crores).
    its definitely connected with the closing down of the automotive division.

page 104 of previous year annual report shows unused tax losses and depreciation for which no deferred tax asset is recognised
this amount over the next decade is 210 crore
this year results

THE PDF IN MY PREVIOUS POST IS THE LATEST RESULT.

because of these unknowns we are getting the stock so cheap.
market cap of 90 crore with debt of around 170 crores which is consistently declining year by year having rental income of 35 crores approx but holding hero moto shares of rs 253 crore(its not a holding company),gets dividend too of a few crores from hero and commercial property (IT BUILDING ) worth conservatively atleast 300 crore.

DISCLOSURE i have sold 12.5 % of my majestic auto holding and shifted it to muthoot finance.

i am invested in majestic auto . my opinions may be biased. i am not a sebi registered investment advisor. this is not investment advice

2 wheelers stocks should do very well in the forseeable future due to need for social distancing which is virtually impossible in public transport.

there is a good chance of hero motocorp getting rerated which will benefit majestic auto .
In my opinion majestic auto mgmt will seek to ride this out and will definitely pare down down a significant portion of its debt by selling off some of hero moto holding (due to all the economic shocks witnessed )
. current value of its holding of hero moto cmp of 2663 is 245 crores.

What i am guessing is the massive income tax paid this year is to do with the land sale . i will post more details once the annual report is released.

Since they have Big IT clients(tech mahindra for eg ) in their rented out property , corona impact should be minimial .Moreover IT companies are doing great .

Disclosure :
i am invested in majestic auto . my opinions may be biased. i am not a sebi registered investment advisor. this is not investment advice .Please do your due diligence before investing

The valuation is as follows :

  1. Hero moto corp = 177 Cr (30% of asset weightage)
  2. Emirates Tech = 0.8*36.25 Cr / 12% rental yield = 242 Cr (41% of asset weightage)
  3. Land = 4.1 times book valued amount as per previous land sale deal
    = 4.1*50.07 Cr = 205 Cr
    = 164 Cr (20% discount) (29% of asset weightage)
  4. Liability = 253 Cr

NAV (Cr) =330 Cr
Value / share = Rs 317

I am not considering facility management business as its profit comes from the expense of Emirates Tech. Hence only Emirates is valued.

Do you agree with this valuation which requires further discount based on expected profit sharing by management with minority shareholders?

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it will be great if you can provide an elaborate explanation for each point

for example how is the liability 253 crore

Good find! @centrist I am interested, but the points which I find troubling are:

  1. why does the company report losses and not pay dividend?
  2. company has some business of its own, which can face a downturn due to covid and WFH situation.
  3. though this thread has done a very good job of digging into this, some points remain unclear.
  4. i do not find hero motocorp a good or even decent growth share
  5. holding company discount is estimated to be 70% or more in India, this one has a 90% discount because of points such as these.

Most likely several of the 100s of vaccines are going to work fine and people will not like to buy a 2 -wheeler other than 2-3 quarters in future (consider in context of depressed incomes in this time-frame), also given Indian weather, fuel prices, and traffic.

Disc: not invested.

Majestic Auto valuation.xlsx (13.2 KB)

The attachment is a conservative valuation.

Good will of 40 Cr, loans, other financial assets of 9 Cr are not considered as assets.
All liabilities are considered.
Since parent company that runs facility management business derives its profit from subsidiary, Emirates, if we consider both valuation, it becomes double accounting. Hence only Emirates is valued based on rental yield method.

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  1. losses are due to a large income tax component this year which i think is connected to the land sale . i dont have clarity on the the income tax component yet
    consolidated pbt this year is 23.63 crores
    Net Cash Flow is 40.1 crores this year

the other losses which are not part of p&l statement are connected with closing down of auto component division
No dividends because company has been using cash to pare down debt.
Even though a small dividend will go a long way towards establishing credibility for the stock.

  1. yes the property rental business is just like nesco(on a smaller scale) but i feel should have minimial covid impact due to the presence of tech mahindra as its tenant.
    i dont think tech m will quit the building because of covid .
    https://bps.techmahindra.com/locator/asia-pacific/
    building info available in the link

  2. thanks :slightly_smiling_face:

  3. hero moto used to be a market darling a decade ago and might bounce bank in the future.

  4. i think this is the main reason the stock is so undervalued , mr/ms market thinks majestic auto is a holding company of hero moto

evidence points to the contrary
in 2015 majestic auto had 10.3 lac of hero moto shares
in 2016 majestic auto had 10 lac hero moto shares
in 2020 majestic auto has 9.21 lac hero moto shares.

Clearly majestic auto has been selling its holding in hero moto and theres a good chance based on past evidence that it will sell further once it gets a comfortable valuation for hero moto shares.

i think this holding company discount deserves to vanish because majestic auto is not a holding company of hero moto.

  1. two wheelers not rebounding is a possibility for sure.

Disclosure :
i am invested in majestic auto . my opinions may be biased. i am not a sebi registered investment advisor. this is not investment advice .Please do your due diligence before investing

i dont think market is considering it as a holding company as it forms only 30% of assets. Its main asset is land and buildings which form 70%.

There are 2 issues with the company

  1. Capital allocation- company to be made debt-free. There were lot of oppurtunities in 2015-2018(once Honda got isolated, Hero moto becomes mediocre) to sell Hero Motocorp shares and become totally debt-free but was not done.
  2. Even bigger issue is no dividend at all. This raises questions about management integrity.

Is there any observations about management ? Will they share the gains with minority shareholders ?

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  1. i agree , once honda seperated , hero moto hasnt got back its mojo yet.
    Yes being totally debt free by selling its hero holding would have been superb.

  2. no dividend i can understand because company has been reducing debt from 329 crores in 2016 to 170 crores in 2020.

will they share gains with minority shareholders is something i havent figured out yet.
but yes due to 75% shareholding and no pledging promotors will gain the most if the stock is rerated

Disclosure :
i am invested in majestic auto . my opinions may be biased. i am not a sebi registered investment advisor. this is not investment advice .Please do your due diligence before investing

I did not find such data in AR-2019. Pls let me know where this data is available.

If promoter has lend at 10%, then 3.73 L for 6 months leads to 7.46 L p.a. Hence loan principal should be 75 Cr. No such borrowing is reported. If this is true that they have promoter have lend 75 Cr, its a huge negative.

i found all borrowings from major banks.(207 Cr from HDFC bank and 8 Cr from PNBHFL). These interest rates are quite high @ 8.65-10.65%. Post-COVID rates should be utilized to switch loans.

heres the data majauto.pdf (235.6 KB)

it was in a related party disclosure to bse on 5.12.19

https://www.bseindia.com/stock-share-price/majestic-auto-ltd/majesaut/500267/corp-announements/

the interest paid is in lacs not crores
its 3.73 lacs for 6 months

Yes, sorry, I did not pay attention to the clearly formatted post of @sambandham82.
Majority asset is land and buildings, so yes it is more a real-estate play like NESCO somewhat.

You guys also have the reasons for valuation figured out perfectly, root-question is with 75% holdings with promoters, will they share with minority?

yes its a mini nesco somewhat . regarding sharing with minority i have no opinion on mgmt intent. One thing i know for sure is mgmt stands to gain the most because of 75% holding and no pledging.

hero motocorp stock seems to be showing strength.

Noted Investors

ANIL KUMAR GOEL 200000 1.92% stake

DIPAK KANAYALAL SHAH 158000 1.52% stake
NISHITH RAMESH PARIKH 1,61,230 1.55% stake
VARSHA RAMESH PARIKH 1,28,717 1.24% stake

Anil kumar Goel stake remains the same in june quarter as compared to march quarter this year.

Dipak Kanyalal Shah has increased his stake

to 1.52% by buying 2800 more shares in this quarter.

Nishit ramesh Parekh has increased his stake to 1.55% by buying 11187 shares this quarter.

Varsha ramesh Parekh has increased her stake to 1,24% by buying 8172 shares this quarter.

https://www.bseindia.com/corporates/anndet_new.aspx?newsid=5b3cb980-1828-44ea-8ea6-d7c8ab1758a8

278469ff-8969-49ab-b05c-62b87a4384ab.pdf (1.3 MB)

Results are out and seem decent considering the pandemic.

Consolidated revenue is down 13.5 % at 16.02 crore as compared to 18.53 crore last year
in that other income has increased from 17 lac to 98 lac . this is mostly interest income showing a good increase.

loan interest cost has reduced 17% to 4.32 crore from 5.22 crore last year

tax paid is 1.22 crore resulting in a tax rate of 25%.
No exceptional taxes this time.

pbt down 10% at 4.91 crores from 5.4 crore last year
pat is down 23 % at 3.68 crores but income tax paid is almost double of last year

In the other comprehensive income section this time theres a massive profit as compared to a massive loss last quarter

theres a other comprehensive income before tax of 87.6 crores
income tax paid on this other comprehensive income is 14.63 crores
and after tax this income is 73 crores

total comprehensive income this quarter comes to 76.72 crore
i dont know the nature of this comprehensive income because nothing is mentioned in the notes to accounts.
seems like land sale income to me but i may be wrong

Overall barely any pandemic impact in terms of income from real estate ( biggest client is tech mahindra and the it majors are doing well)
Debt is reducing.

another huge positive is value of its ownership of 921000 shares of hero moto has increased to 281 crores (hero price of rs 3059.3). from 221 crores in june .two wheeler companies seem to be doing better.

Stock has been showing some strength in the past 10 days and heightened volumes as well.
current market cap is 110 crores . Let us see if the huge discount to its intrinsic value(around 350 - 400 crore mcap according to me ) reduces in the coming months.

Disclaimer : This is not investment advice and should in now way be construed as one .I am invested in majestic auto .I am not a registered sebi investment advisor. Please do your due diligence before investing.

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NAV is around 350 Cr (after giving 30% discount to sale of assets like Heromoto, land and Emirates building and deducting all liabilities). But still we cannot expect management to share this value with minorities totally. Hence 50% discount to this NAV is mandatory. so minority shareholder’s NAV is 175 Cr.

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NOTES FROM THE ANNUAL REPORT

  1. company has ventured into leasing of industrial setup on fy 19 -20 . they have leased out 1 lac square feet of space in greater noida to an mnc.

  2. this new business is also being done through its subsidiary emirates technologies, which owns the knowledge boulvevard tech bldg as well.

  3. total occupancy as of march 31st 2020 was 95%.

4)borrowings (secured ) has reduced from 207 crore to 173 crore

  1. debt to equity ratio is 0.64

  2. I attended the agm online but could catch very little of it due to tech issues from my end.
    company is in the process of acquiring new assets.
    and they gave a positive indication of selling their hero moto corp shares .

HERO MOTO SHARES OWNED(9,21,000 SHARES) AT CURRENT PRICE OF 3288 is WORTH 302 CRORES AND CAN EASILY TAKE CARE OF ALL THEIR DEBTS

IF ALL ITS HERO SHARES ARE SOLD ,MAJESTIC AUTO ( MCAP 93 CRORE) WOULD END UP HAVING AROUND 120 CRORE NET CASH , KNOWLEDGE BOULVEVARD BLDG WORTH ( 200 CRORE - 6 YEARS OF RENT AT 35 CRORE PER ANNUM) AND A NEW INDUSTRIAL LEASING SPACE OF 1 LAC SQUARE FEET (WE WILL KNOW THE REVENUE THIS YEAR)

Hero stock is doing well and seems poised for a breakout technically

Disclaimer - i am invested in majestic auto , this is not investment advice and should not be construed as one. Please do your due diligence before investing.

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