One query I have:
As per the data given in the presentation of AGM (https://www.bseindia.com/xml-data/corpfiling/AttachHis/58ccca91-e3a9-4f40-b221-144bc065fa18.pdf#page=16), sales volume has grown at 26.54% CAGR from 45308 MT to 116187 MT. However, sales amount (in Rs Cr) has grown at only 11.58% CAGR from 41.6 Cr to 64.5 Cr
This indicates that price cuts have been taken by the company. What is the reason for the same?
Please do let me know if anyone is aware of the reason for the same.
Hello everyone. I got the answer from the CS, hence sharing the same. The company earlier also had ramming mass trading activities which have now been stopped. However, the volumes shown are of only manufacturing. Hence, the sales volumes reported in the presentation have grown faster than sales amount.
Very big update
Shri Rakesh Jhunjhunwala investing up to 30.9 Cr through compulsorily convertible debentures at 515 per share
Interest rate is 15% per annum and conversion is after 18 months.
Hence, 0.15 * 1.5 * 30.9=6.9525 Cr will be the interest payment
Assuming zero time value of money, invested amount net of interest income will be 30.9-6.9525=23.9475 Cr
Number of CCDs=6 Lakh
Hence, price of allotment adjusted for interest is 239475000/600000= Rs 399.125 per share
Dilution is 600000 / 10876300 (current number of shares) is approximately= 5.5%
Hence promoter holding will come down to 65.77% if promoters do not buy more shares themselves
He’s buying only a 5% stake in the company at a 20% discount to current share price and gets paid 22.5% over next 18 months. It’s like buying warrants at this point - huge advantage for him and not sure why the company would do this for when there’s no need to.
The only reason I can think of is that they are looking at an even larger capex than they mentioned in the AR.The steel sector in India has been doing very well & is expected to continue doing well given export restrictions by China.If you look at Q1 nos. for RPEL it was very similar to Q4 which is amazing given the severe restrictions in the April-Jun quarter.So strong demand could’ve prompted another raise.RJ on-board also gives more visibility to the company.
Where is this money going to be utilised? As a very large capex is already announced- is this being increased? If so, that could mean that the company is seeing very strong demand.
On 30.9 Cr, 15% interest= 4.635 Cr interest payment per annum. FY 21 net profit was 9 Cr- so how will they pay the interest? Halving of net profit does not seem logical to me. From what I am guessing, they may issue shares worth the interest payment amount too i.e. instead of paying 4.635 Cr cash amount as interest, they may issue additional shares worth that amount- this seems more logical to me. Or perhaps it may be a bullet repayment at time of conversion.
The conversion price is already 25% lower than the CMP. On top of that 15% interest? Why does the company need to offer such a preferential deal to one big investor?
Although the dilution is not much, this deal does not appear friendly to the minority shareholders.
No one is talking about valuation? My only concern was valuations it is still is. How much topline growth and bottomline growth it can produce to justify all the future valuation it will get with this news?
The company helps increase productivity, which means it is Green. Valuations don’t matter for Green companies these days as Green is the Future.
Jokes apart, yes, the company is definitely expensive. High valuation at the time of buying is the reason I don’t have a large holding. The past performance of the company and the management are top notch, and the company appears to be at an inflection point with a mature product and the huge turnaround of the steel industry. It is possible that the future performance may justify the current valuation.
What do we do when a stock we do not want to sell gets too expensive? No idea.
@ravish
Good point. Personally, I am slightly on the Marcellus philosophy- PE is not the best indicator of valuation; a DCF is. Same point is made by Shri Bharat Shah here. In the now-famous debate on relevance of PE, Mr Mukherjea says that not all earnings are equal- with respect to accounting quality, capital intensity etc.
I do get some comfort on valuations seeing the other marquee investors- Shri Rakesh Ji has famously said ‘it is important what you buy, it is more important at what price you buy.’ If he is investing at 515, we can assume he would have found 515 to be at least moderately cheap. Now is the difference between cheap and expensive 70% (515 to 871)? I personally think the gap between cheap and expensive must be higher (views may differ for others).
@sameernics I would politely disagree. RPEL does not make steel; it makes silica ramming mass which it supplies to steel companies. In fact, I have specifically written about second-level thinking for RPEL. Even if RPEL was a steel company, in that case in fact a 60 PE would be cheap- as in cyclicals, the saying is-‘buy at high PE, sell at low PE’. As high PE is more often than not due to depressed earnings which is normally the bottom of a cycle.
However, I do believe that the market will generally view it as a steel company, and I believe there will be a good opportunity to buy in a steel downturn, wherein most likely RPEL’s performance will remain steady, but the price will still correct due to market irrationality. This is like Mr Mohnish Pabrai’s bet on Stewart Enterprises- a funeral company. After 9/11 attacks, the stock crashed, even though if at all there was any impact of the event on the company, it was on the positive side. Disclaimer: not criticizing in any way, merely stating my opinions, opposing views are invited.
Annualising the earnings of the last two quarters, the PAT will be Rs 16cr for the full year. Forward PE is still below 50. It seems that the stock price will soon lose all sense of restraint. If forward PE goes above 60-70, most likely I will pare down my holding almost completely once the upper circuits end. Selling will not be difficult since this frothy market has been very forgiving to stock run-ups. However, timing is important. In many cases, once the trend changes, it becomes difficult to get out.
@Malhar_Manek, Can you explain why would promoters give a 20% discounted price (at the time of announcement) over and above a 15% interest to RJ, when there was a clear option for the company to go for a QIP at much attractive price? What was forcing them to go for this 30.9 odd cr? Isn’t it strange?? and for me its a big red flag.
My concern was… why do you think, the promoters have not gone for QIP route for the same number of shares at much higher price (when the RJ announcement was made) instead settled for only Rs.515 and a 15% interest on the top to him? And do you think this was done just to earn the trust in stock market?
I leave it here though I am not convinced on the Trust theory.
It would be interesting to see how RJ would influence SAIL (A Govt. Co) and Tata steel to be a RPEL client.
