Pudumjee Pulp & Paper Mills Ltd - Value unlocking post spin off

Thanks, I hope you share what you find out in the forum. Even I have a lingering doubt on this and think that it will be promoter land only, I could not find any reference of this land in the demerger documents. Also when I spoke with the finance guy at the company about a year ago, he mentioned that promoters were planning to sell/lease their land to the company for development

Discl: Invested in tracking quantity

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Security Code : 500343 Company : PDUMJEPULP

Entered Memorandum of Understanding Download PDF 29 Jul 2016 13:49
Pudumjee Pulp & Paper Mills Ltd has informed BSE that the Company has entered in to a Memorandum of Understanding with G Corp Group for the joint development of the land admeasuring about 9 acres at Village Ranjoli, District Thane, through a Special Purpose Vehicle, offering a potential saleable of about 12,00,000 sq. ft. (residential and commercial) subject to the requisite approvals and fulfillment of certain conditions.

The aforesaid development is in addition to ongoing projects undertaken by the Company.

I copied the announcement text just to highlight the last sentence, which says that this development is in addition to the ongoing projects undertaken by the Company. This is a welcome surprise. Yes, it needs to be ascertained whether the land was originally owned by the company (there was no mention of this in the demerger document) or by the promoters, what is the arrangement for transfer of the land to the company (if owned by the promoters) and whether all the income earned would accrue to the company etc.

G-Corp has been their partner since beginning and seems to have a good execution track record. I had checked with Pune-ites on the attractiveness of their Pune location, however Bhiwandi is a large area, and although I myself reside in Thane, I need to dig more on the location (which will give some idea on the demand).

It is very difficult to analyse the results. Power generation continues to be the major contributor to the sales as well as capital employed. Again, not much information is available on this. Also what is the nature of the investments/others which contributes 43-44cr (just less than 50%) to capital employed but has not generated any income.

This continues to remain an “option” stock for me as there are too many unknowns.

Discl - invested from earlier, tiny portion of my PF.

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http://www.mapsofindia.com/villages/maharashtra/thane/bhiwandi/ranjnoli.html

Village Ranjnoli seems to be off Kalyan, which is a distant suburb of Mumbai. Checked with my brother who is in Lodha. There is not much development in that area as of now. Tata’s are there (low cost housing) for which demand is tepid. There are mostly lodging&boarding places for stopovers for people travelling through. Currently Thane-Bhiwandi highway is seeing some development. Ranjnoli seems to be nearer to Kalyan-Bhiwandi highway which looks like a long term plan (atleast 5-7 years). Not very attractive for the moment.

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https://karisma.karvy.com/images/2016/PPP_4451/PPP_Annual%20Report%202016.pdf

I was reading the management discussion and analysis portion of FY16 AR. Some observations are as below. I haven’t analysed the numbers in detail. The intention was to try and get information on the potential of the real estate business.

1.Existing development in Pune:

  • 12 acre land, developable area 9.3 lakh sq. ft
  • 5 towers, 12 floors each, 94 flats in each building - constructed and sold and handed over
  • 6th tower with 16 floors and 124 flats – almost sold
  • 7th tower with 16 floors and 124 flats – pending construction
  • 89 flats sold in FY16 (presumably from 6th tower)
  • Company’s share in profit in these flats amounted to Rs. 7.07 cr. This represents 60% share in the JV with G-Corp. Profit per flat is roughly Rs. 8 lakh (Pudumjee’s share)
  • With same yardstick, the 7th tower could generate profit of Rs. 9.9 cr (viz. 124 flats x 8 lakh rupees).
  • Demand is soft as per management. So whether all this will come in FY17 is not known

2.Second parcel of land at Pune:

  • 13 acres land, developable area is 9 lakh sq. ft
  • Approvals are pending to start development. Timelines not stated
  • This will also be in JV with G-Corp.

3.Greenville Project

  • This is proposed project which will be developed entirely by the company
  • It is awaiting statutory approvals
  • No further information available – location, size etc.

4.Existing land and building owned by the Company:

  • This is leased to the Paper company for 5 years (till 2021)
  • The paper business is being relocated to Mahad
  • If the relocation happens earlier, this area may also be developed under real estate
  • This land and building is currently mortgaged to banks for the facilities provided to the Paper company, and talks are on to release it. They may substitute it with the Mahad property subject to approvals.
  • As per the demerger note, the area for this land is 29 acres. It is not clear whether it includes the land mentioned under points 1 and 2 above (totaling 25 acres). But it would be a fair assumption to believe so, because factory and office can be imagined to be spread over the remaining 4 acres.

5.Land at Thane (please refer above posts)

  • Surprisingly, very surprisingly, there no mention at all in the AR. The AR is dated 29th july. The Director’s report, which gave the above information is dated 28th May. The Stock Exchange announcement is dated 29th July
  • As per the announcement, the developable area is 12 lakh sq ft, which is extremely large and hence surprising that it was not mentioned in the AR.

Some key financial indicators:

  • Real estate contributed 58% to sales, wind power 34% and rest is from others
  • The company’s inter corporate deposits was Rs 44.5 cr (placed with group companies), as compared to Rs. 28.9 cr in FY15.
  • Consolidated debt is Rs 11.9 cr, against networth of Rs. 87cr
  • Loans and advances totaled Rs. 47 cr, of which long term is 37 cr and short term is 11 cr. This more-or-less tallies with the ICD figure above
  • Sales of the JV company was 42.6 cr (PY 65.8 cr) which is the sales from real estate business. Net profit was 11.8 cr (PY 22.6cr), of which 60% i.e. 7.07cr was Pudumjee’s share.

All in all, the potential of the company is quite large. But execution risk is very high as all the future developments are awaiting approvals.

Discl – same as above.

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Hi @Nirav8 and others - thanks for the nice write up and thread. Read about the company first time today. From FY17 annual report, looks like only building 6th and 7th will amount to revenues/profits in Fy18. rest all other projects are awaiting approvals.
Have few questions, would appreciate your response! -

  • 29 acre of land - is the understanding correct that it cant be used for development till 2021-2022 as it is leased to other group co till 2021?

  • What is management’s plan with re to using this 29 acres of land - do they want to use it for development (if yes, by when) or some other purpose?

  • What does management say about ICDs?

  • land at Thane - Co bought 50% of an SPV in which CG copr is other entity to execute this project. Has development started on this project?

  • Impact of Ind AS - as per my understanding, proportionate consolidation method is no more applicable and only net profits from JV will be reorted in P&L. Is it correct to assume that company will have very limited topline to the extent of non-RE segments and JV’s share of profits will be added to bottomline directly from FY18?

many thanks.
Rajat

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Hello guys, i have also read about recommendations about pudumjee paper. Pls help us with guidance and future prospects. Looking forward to your response

Hi Rajat,
I had attended Pudumjee AGM yesterday. Will try to address query and update on additional info.

  1. FY18/FY19 will reflect 6th and 7th building (total 180 flats) + 40000 sqft for amenities building (as mentioned in AR FY17)

  2. 29 acres (as mentioned in de-merger document) isn’t the total area held by pudumjee pulp. Total area as clarified by management in AGM is close to 50-55 acres. Pudumjee Paper Products lease has commenced from Nov 2016 for 5 years. However area adjacent to factory will be used for development (same premise). Company has already entered into MoU with G-Corp for 12 acres (part of factory land). Shifting to Mahad will take time (due to infrastructure - four laning of roads, higher paper capacity needed). Company believes it can do potential development of 55lac sqft at factory land over period of 10-15 years.

  3. ICDs have already started to come down (from Rs 36ct to Rs 30cr). I asked about ICDs at AGM and was told they will come down. My concern was they shouldn’t increase since Real Estate should generate good cash flow.

  4. Thane land belongs to 3rd party. G-Corp and Pudumjee have entered as developers. I failed to understand why would Pudumjee be entertained as co-developer. On being asked about what would land owner get, I was told they have some revenue sharing agreement. Project hasn’t taken off since some approvals are pending from land owner side. Post RERA, projects won’t commence without all approvals in place.

  5. Yes, post Ind AS, JV topline won’t be consolidated (only bottom line will be consolidated )

Few other Info

  1. Company has applied for name change as AMJ Land (AMJ stands for promoters initials Arunkumar Mahabir Prasad Jatia)

  2. Company intends to focus on Real Estate. Cash generated will be deployed in business.

Summary

  1. Company currently owns factory land (50-55 acres). Land was last revalued at Rs 6.7cr/acre (Rs 1500/sqft) in 2013.

  2. Company has another 2 acres plot waiting opp factory land waiting for approvals.

  3. 2 buildings + 40ksqft of development will happen in near term.

  4. 12l sqft potential development in 50:50 JV with G-Corp at Thane.

  5. ICDs coming back would be positive.

It provides good risk-reward at Rs 96cr mkt cap given the potential monetizing of Real estate segment over period of time.

Disc - Invested.

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Thanks Nirav for the notes.

Assuming 8-9 lacs profit per flat, 180 flats will result in ~16cr of PAT. Any idea on what could be revenue/Pat potential of amenities work?

Thane- yes, it sounds weird why would pudumjee enter into any such agreement? What does it bring to the table in such a deal!!! Confusing.

Agree with you that it’s a low downside bet…actually with the land they own there seems to be no risk to capital from here on.

Thanks very much for your inputs!

Best
Rajat

Disc - not invested.

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Hi,
I don’t have much sense on amenities work potential.

no worries, thanks Nirav.

IS the above company delisted? I can only see Pudumjee paper now.