NAGARJUNA AGRICHEM -- lottery ticket

Stock Opportunities
1

As the title suggests,one can consider this one as a lottery ticket and buy at around 6 with stop of 5 and expect multibagger returns.

Company as mentioned in charts is into insecticide production passing through debt problems since past few quarters. EV is close to 300 crores and company is doing operating profits of close to 60-70 crores. But interest and depreciation burden is eating all profits.

attached chart shows multimonth support at around rs 5.

disc: bought small quantity today just as a lottery ticket to see what kind of returns it generates in a couple of years.


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Hi Hitesh,

Have you looked at this company from fundamental point of view?I really do not understand why they split the share recently - just for speculation!!

Regards

3

prashant,

coming to funda for nag agrichem, this was a very fancied stock some time back.

then there were some labor troubles and other issues where it seems to have lost its way.

debt is relatively high to the tune of close to 200 crores against market cap of 90 crores.

A big positive I see is very high promoter holding of 78% with no pledging.

Company in the past has performed well with net profits of around 50 cr in 09 and 60 cr in 2010. then it seemingly lost its way.

Now the bet is that if in next couple of years the company can get its act together and achieve peak net profit levels, we can have a multibagger on our hands.

strict stop loss is below 5. if stock breaches levels of rs 5 and closes below it then all bets are off.

4

Actually an explosion happened in their plant on June 30.This incident creates panic among the public who resides in nearby places.They agitate against company for closure of plant.Then collector ordered to close that plant.

http://www.thehindubusinessline.com/companies/article3588503.ece

http://www.thehindu.com/news/cities/Visakhapatnam/nagarjuna-agrichem-told-to-stop-production/article3595464.ece

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Today it has hit the Rs. 5 limit mentioned by Hitesh in the opening post of this thread and seems to bebouncing back.

Interesting development. Sort of confirming the view expressed by Hitesh.

6

Why company want to invest 100 Cr inHydropower plant ? Where they have 500Cr equity?

http://www.bseindia.com/corporates/anndet_new.aspx?newsid=a8994257-e0e7-4ac7-99d2-92b02f32b024

"Nagarjuna Agrichem Ltd has informed BSE that the Board of Directors of the Company at its Meeting held on February 04, 2013, inter alia, has;

1). approved the investment of 20% of the Equity Capital required to implement the 300 MW Hydro Power project on Tolung Chu River in North Sikkim district of Sikkim, by M/s. Himagiri Hydro Energy Private Limited (HHEPL), a Nagarjuna group Company. The project is in very early stage and the aforesaid 20% translates to approximately Rs. 101.0 crores of equity investment;

2). took note of the resignation of Mr. K. Rahul Raju, from the Directorship of the Company."

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Oh! Nagarjuna Agrichem will invest 100 crore, that 20% of the equity of the project. Probably they want to eat left overpesticide and end life ofNagarjuna Agrichem.

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This recently came on my radar. Just to clarify on the bonus stock issue - this is being done to bring down the shareholding of the promoters under 75%. So they are giving bonus shares to the public shareholders (3 stocks for every 14 stocks held) for free. As far as i understand it is a good thing, all individual shareholders’ shareholding will increase without paying anything for it.

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Anyone tracking this company ?

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This is my first post to this forum
Some material development have taken place during last year:
1-Krishi Rasayan Group, a leading player in Pesticides Formulations & Export has invested Rs 115 crore in Equity Capital of the company. This will provide equity capital for future growth in the field of CRAMs. Krishi Rasayan Group turnover is around 800 Crore and decent profit. Krishi Rasayan Group promoter Mr Atul Churiwal & Mr Rajesh Agarwal have been appointed as Nominee Director.
2-Company has entered into contract Manufacturing agreement with UPL ltd with 100% buy back arrangement with steady PBILDT margin of around 20%. The project was supposed to be completed by January 2020. However company has not informed Stock Exchange regarding completion of this project.
3-NACL Spec Chem Ltd has been incorporated on 27th April 2020 as new wholly owned subsidiary company to expand further in the area of Technical Pesticides & Speciality chem.
Company’s export is also increasing . Next few years may be positive for company if company can execute project timely & without much leverage.NACLMultichemform.pdf (4.2 MB)

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12

NACL Ltd has posted good results. Turnover has increased by 55% . Company has turned around by earning a Profit of 7.02 crore in March quarter as compared to loss of Rs 25.40 crore in Q4 last Year.
Company has utilised only Rs 34.50 crore upto 31/03/20 out of Rs 115 crore raised mainly from Krishi Rasayan Group. Balance fund may be used for expansion projects.
NACLMarch20.pdf (7.6 MB)
Disc : Invested

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13

Turns out that NACL has completed left no stone unturned.

Some top of the mind questions :

Share Pledged by Promoters 38.37%
ROE: -2.34%
Sudden increase in PE from (-ve) to 33.02 - any reasons? - May be due to covid-19 they got high number of export/in house order?
High set of receivables
Do we have any numbers in terms of opportunity/size of order books?

Debt in the books stands to : 255.94 cr

Management has raised 115 crores on March 2020 for growth through preferential issue
a) 27th March, 2019 (allotment of 1,09,37,500 equity shares & 2,50,00,000 warrants on preferential basis);
b) 24th March, 2020 (allotment of 2,50,00,000 equity shares upon conversion of 2,50,00,000 warrants issued and allotted on the aforesaid date i.e. 27th March, 2019)

Government of India deemed agriculture related sectors including Pesticides as essential
and pennitted operations in a limited way, based on which the Company resumed activities in its production facilities. The Company adopted number of measures to protect the health of its employees while ensuring
business continuity with minimal disruption. In assessing the recoverability of receivables, inventory and other financial assets, the Company has considered internal and external information up to the date of approval
of these standalone and consolidated financial results. The impact of the global health pandemic may be different from that of estimates as at the date of approval of these standalone and consolidated financial results
and the Company will continue to monitor closely any material changes in the emerging economic conditions

Seems like they are raising capital and ramping up for quick solutions for the existing covid-19 situation

Capital work-in-progress 3,482 (2020) | 1,517 (2019)

High number of receivables can bee seen balance sheet - does the company have a turnaround to recover them?

What about, if we compare this to peers : Bharat Rasayan, UPL?

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1-Combined Level of Debtors & Inventory as March 20 is higher by only 7% vis a vis rise in Turnover by 55% in last Quarter and 17% for entire year. Higher level of Receivables at year end is due to 55% higher turnover in last quarter.
2-Company has done Capex of around 90 cr.(Derived from Change in Fixed Assets+CWIP during the year +Depreciation).Against this long term borrowings has increased by only 11.20 Cr. Not sure if contract Manufacturing project with UPL completed.
3-Current Ratio has declined from 1.29 to 1.25 as at 31/03/20. However Cash & Bank balance increased from 11.99 cr to 117.68 Cr due to receipt of Share allotment money from Krishi Rasayan Group.
4- Export of Technical Products is increasing. Company is not divulging much details of new products. Main products are Profenophos, an insecticides, Propiconazole, a fungicides. Company is also manufacturing Proprietary products to MNCs. Company is also very strong in local Formulation as well as technical market.
Press release of Q3 results informed following
a- Export business grew by 30% as compared to same quarter.
b- Formation of wholly owned subsidiary to manufacture Agrichem at Gujarat at Project Cost 150 crore.
c- Formation of new wholly owned subsidiary to take Company’s greenfield project at Andhra Pradesh. For this NACL Spec Chem was incorporated on 27th April 2020.
It seems subsidiaries has been formed to take advantage of lower Income Tax Rate of 15% for new manufacturing Company.
Company has spent around 90 cr in 2019-20 & also lined up huge capex through subsidiaries during current & future years. Company has more than 100 crore in books which can be pumped as equity.
Timely completion of these projects by not taking much leverage is huge risk.

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An Extra Ordinary General Meeting (EGM) will be held on 7th Sept.2020 to allot 5000000 Warrants to Promoters at issue price of Rs 39/ Amt Rs 19.50 Cr. As per Explanatory Statement of EGM this amount will be utilised for the purpose of investment in Subsidiary Company for financing various Greenfield Projects. It seems expansion projects will be completed through Subsidiary Companies. It is heartening that company is raising equity to fund expansion. This fund raise along with Cash equivalent as at 31.03.20 will help company to invest good amount in future expansion

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ANNUAL REPORT FY 20 NOTES
HUGE EXPANSION PLANS
1- Capacity of Existing Plant of Active Ingredient(A I) to be increased from 10000 MT/Year to be increased to 25000 MT/Year of AI & Intermediates.
2-NACL Multichem Ltd ,100% subsidiary of NACL to manufacture 38000 MT/Year of AI(Technicals) & Speciality Chemicals in phases.
3-NACL Spec Chem Industries Ltd another 100% subsidiary of NACL to set up greenfield project of AI & intermediates Capacity 25000 MT/Year.
Identification of good Products & expansion with less leverage will be key.
During the year 19-20 , company has successfully commenced manufacture of two new AI namely Lambda Cyhalothrin an insecticide and Bispyribac Sodium, a herbicide. Company also introduced 8 new formulated products.
Company has appealed to Govt of India against proposed ban of Tricylazole.
Some bio products are being tested to move towards environmentally safe products.
TURNOVER & EBIDTA
Turnover grew from 857 Cr in 18-19 to 1003 cr in 19-20 , a growth of 17%.Domestic Sales of 746Cr (Formulated Sales 440 Cr) against 633 Cr in 18-19. Export Sales 257 Cr as compared to 224 Cr in 18-19.
EBIDTA grew from 39.41 cr in 18-19 to 76.07 cr in 19-20 a growth of 93%. EBIDTA margin is less than 8%. This needs to be improved , lower as compared to other player.
Disc Invested

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Are they having tie ups with big companies so that they can have better revenue growth in future.

It is more like a B2B business, importance is relationship building with big players.