Multibase India Ltd

Stock Opportunities
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DowDuPont Inc. is an American company formed after the merger of Dow Chemical and DuPont on August 31, 2017. It is the world’s largest chemical company in terms of sales. Within 18 months the company will be split into three publicly-traded companies which will focus on the following: [agriculture, materials science, and specialty products.The agriculture division is named Corteva Agriscience, the materials science division is named Dow, and the specialty products division is named DuPont.

Dupont has acquired 75% of Multibase at Rs.149/- per share or twice the book value. Multibase will be under the speciality products division named Dupont. Since there is already a Dupont Pvt. Ltd in India, multibase is likely to be absorbed by Dupont Pvt Ltd. Nobody in Multibase corporate office lifted the phone and my email query to the company has remained unanswered.
Disclosure: Not invested

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Hi, does anyone know who are multibase clients and where all multibase products are being used? I checked multibase website and they didn’t list their clients there. I am trying to see if this company is worth investing or not.

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What is this company doing special as it has only 9.8 crs of Fixed assets and able to generate revenue of 109 crs, and profits (net) of 19.55 crs (i.e 2X of its fixed assets). Why cant some other potential competitor eat away its margins. what is stopping them to do that?. Also it seem to have a high working capital requirements. Seeing the balance sheet for last few years it looks like it requires very less reinvestment requirements to produce the incremental revenue generation, but then y does this company hold 51 crs in cash? (no dividends yet), would like to understand from fellow VPs

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My analysis of this company is as below
Positives

  • Strong parent company - Dow Dupont USA
  • 75% ownership with no pledge
  • Higher operating margin suggests pricing power related to competition
  • Low capex requirement (as fellow VPer mentioned above - 9Cr fixed asset generating 109 cr of sales)
  • Good auditor - BSR
  • Cash rich company, no debt
  • Long growth runway due to large product portfolio
    Negatives
  • No dividends in-spite of regular cash generation
  • Related party purchases - Purchases from Multibase SA and Dow Europe GMBH - Total 25 Cr
  • Presence of fully owned entities in India in similar businesses as highlighted by fellow VPers
  • Lack of communication from management - No investor presentation, no result concalls, annual report lacking information is managment discussion and analysis

Lack of dividends is the biggest mystery knowing company is sitting on pile of cash and business does not need any major capex. (mainly required for working capital)
So I feel biggest risk is delisting by the company and merging the listed entity into any existing fully owned entity (may be shortchanging minority investor in the process)

Disclosure - tracking, no investment

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Firstly, biggest challenge while studying this company is absolute lack of information by company. Further, not on the radar of many research houses etc.considering 500Cr ish MCAP.

Actually, this superb return ratios with low re-investment need got me started on this company.

My assumption (as I mentioned, very limited sources of info at disposal), company is majorly into value-add processing and trading activities rather than integrated end to end manufacturing in typical sense. Most likely leveraging wide base of group companies to source masterbatches and TPE. Out of the ~66Cr of COGS, ~34Crs are sourced as related party transactions.

Purchase of raw materials
Multibase S.A, France 140,968,780
Dow Corning Corporation 33,013,313
Dow Corning LimitedBarry 10,204,796
Dow Corning Europe S.A. 45,129,271
Dow Europe GMBH 108,746,414
Dow Silicones Corporation 2,246,185
Dow Corning Toray Company Limited 106,268
Total 340,415,027

Another way to corroborate the fact will be to check the employee strength. 36 permanent employees only.
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Dividend Payout Issues:

Very true that net margins are consistently improving for last couple of years. 6% in 2012 to 18% by FY18. Still company is not paying ZERO dividend. One distantly possible explanation (rather plausible excuse) that I can come up with on behalf of company.

Dow and Dupont are pursing merger and re-organizational exercise since 2015 which got culminated recently. Knowing the overlapping nature of product profile, Multibase SA could had a fitment in two of the three resultant entities namely material science (Dow) or Specialty Products vertical (DuPont). (Trivial: Actually, Multibase was initially aligned under Material science only, however had ‘targeted readjustment’ under Specialty Products vertical Link). In context of the large scale corporate re-org exercise, company may have found it reasonable not to deplete the reserves by issuing the dividends. More so, this may be perceived as an excise where Dow taking out money home by virtue of majority shareholder (75%).

Again, this is more of my personal conjuncture and I find it prudent in part of Dow NOT to reward itself dividend while going through a multi billion re-org.

Client concentration:

Top Three clients
FY’18 FY’17
Top Cutomer 218,063,094 68,442,476
#2 Customer 85,526,661 48,062,143
#3 Customer 83,546,812 53,146,834
Total 387,136,567 169,651,453

On one hand this becomes a risk where ~35% revenue is concentrated with top 3 customers. Whereas, on the other hand, point worth noticing is the steep jump of revenue for each of them. More prominent one being the top customer where they have a 3x revenue.
Boarders who are tracking this counter- any clue who are the top three customers, at least the industries they belong to? My hunch is on auto sector though.

CSR spending:

Though I was able to reconcile myself with no dividend, however, a closer look at the CSR spend is
leaving my in a state of disgust (for lack of better expression).

Section 135 of companies act (prescribing a minimum 2% of average net profit for CSR spend) came in existence in 2013. Our dear company has paid NOTHING, absolute NOTHING till 2017. In 2018 they became socially responsible and spent ~55 thousand (drum rolls please). Net net, 55K spent against required 80 Lac spending so far (between 2015-18) and looking for more 'appropriate and suitable opportunities.":roll_eyes:

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Equally ridicules were the explanation for previous years. Same junk year after year, just copy past the dates:

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In summary, numbers are good, ratios are improving and and balance sheet looks strong. However, difficult to ascertain what is mojo here - considering the lack of info source. Also, looking at dividend issue in conjunction with CSR issue is not inducing conviction on leadership style.

Thanks,
Tarun
Disc: Multibase was on my radar for some time and took a bait once price was very favorable. <5% of PF.

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Hi, does anyone know if multibase quarterly result are out?

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Yes Here:

Stock corrects 18% today.

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yes. results are not good.

both topline and bottomline declined 20%.

Disclosure : Invested.

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The fall in my opinion is due to note 4 in the results which mentions agreement to sell one product stands cancelled. This product contributed Sales of Rs.37 Cr out of Rs 109 Cr for year 2018-19. This is big loss for the listed entity which will have big impact on the company. I did not see any new product being added to this company. So this is negative for minority shareholders of the company.
Disclosure : invested 2% of my PF

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This discontinuation of sale of antiform which constituted 37 out of the 100 crores of sale shows the scant regard of the management for the retail share holders. A reputed MNC doing such value destruction was not expected. Instead of keeping afloat a listed company , they should delist and not trap gullible investors.

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Usually MNCs never done such thing with the intension to harness minority invesrors interest there must be some limitation of parent co. To do so!

Disc.:- tracking

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There were some hints though if you do forensics
High CF but no dividend despite MNC
No con call , ip and no info in annual reports .Combine with high valuations it was a mid risk low reward bet.

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You are right more or less its clear their intension is to delist company at possible lowest cost…
They have tried delisting offer at 234 in 2016 before Dow aquired that french group…
Can any one explain that family tree of merged conglomerate:-)

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The oncoming results will see a huge hit on the top line and bottom line with a big component of their sale discontinued. And if there is no proactive step on the part of the parent to make up for the loss , the share price may tank further with the perception that the company is not share holder friendly. This can keep the price depressed for long. Is it a ploy on the part of the parent to cheaply delist the company?

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Can you tell how much money they for this product sell?

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@ethanshunt
Management trust is lost. We don’t know why they discontinued the product and the parent company’s future plan. Looking forward for the anuual report.

Disclaimer: I owned this stock but exited it with 15% loss after Q4 results and withdrawal of the product.

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teh discontinued products is a result of demerger of Dow and Du Pont. Multibase India and its promoters couldn’t have done much if both the companies separate. all teh Du Pont products are still a part of the Multibase India.

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Pl. refer to my warning post of December 2018. Investors should have been vary of approaching such investor unfriendly companies, even if it looks like a small cap multinational. When a jewel like Gruh Finance or multibase is absorbed, it’s compounding stops and it is transformed into the likeness of its parent. When DuPont acquired 75% of multibase at ₹149 or twice book value, was it not indicating clearly to the market, the shape of things to come. And is the share price not reaching the value paid by DuPont. Ponder!

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I started tracking the co. since the last week and it looked too good to be true while initially screening

  • Stable business with high ROEs/ROCEs, slight growth but no deterioration in numbers, debt free BS

  • Cash on books of 80 Crores and Mcap of 130 Crores, so essentially EV of 50 Crores for co. generating 20-30 Crores of EBITDA

However as I studied more on it, I found several concerns, few are discussed in the thread and few are not, I will sum it up

  • Loans towards fellow subsidiaries: FY19 special resolution passed to give loans worth 60 Crores and 20 Crores respectively to fellow subsidiary: DDP Speciality Products India Pvt Ltd & Performance Specialty Products (India) Private Limited for working capital at RBI + 4% for 5 years. Co’s cash reserves are 80 Crores currently.
    So, essentially, all the profit the co. acquired by operating over the years (it has little reinvestment needs) equaling to 80 Crores would be parked in “Fellow Subsidiaries”, these both are subsidiaries of the parent and not of Multibase India Ltd. Essentially, this deprives the shareholders of the Co. of any profit distribution activity

  • High RPTs: FY19 COGS was around 75 Cr out of which 33 Cr was sourced from related parties; 4 Cr of sale is towards RP

  • Degrowth in financials: Due to the global restructuring, the Company’s agreement to sell one of their products namely Antifoam stands terminated with effect from 01 April 2019. It contributed 37 Cr in FY19 and 31 Cr in FY18 topline. Essentially, 1/3rd of the topline evaporated.

Any counter-opinion would be appreciated.
Regards

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The things I’m trying to find out are the following:

  • What other agreements are signed with the parent (existing/pipe-line)
  • Where does Multibase fit in the whole restructuring that’s going on at the parent level (dow + Dupont merger then the restructuring now. No mention in the documents at the parent level)
  • I got an understanding of what they manufacture (essentially chemicals that make stuff flexible). But I’m not sure of the specifics of the industry - how does procurement work (nature of contracts, process, etc.), what is the frequency, competition, etc.

Any input the above would be appreciated.

Rather than malintent, I think it was the insignificance of Multibase India in the overall scheme of things from the parent’s view that affected thing.

View: No position. Tracking. Need a LOT more clarity before deciding/entering.

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