Rishiroop - Formely Puneet Resins - A Potential Multibagger?

Stock Opportunities
1

Just analyse Puneet Resin available at Pe of 4 ,Div Yield of 4%,market cap of 22 crore,Good sales ,selling under their own Brand Vinoprene of rubber chemicals N also distributing products OF American MNC Excel Polymer .

Its been creating new highs.A 2nd generation of entrepreneur has taken over the management n is responsible for turnaround aka Manav Poddar of Mayur Uniqoters.It belongs to long listed Rishiroop group.

Excel Polymers isn’t as commodity a business as it appears, i.e. collection of rubber from trees and selling it. Even though it makes intermediate products and not consumer brands, Elastomers require R&D. They make B2B segment rubber products for medical, transportation, space, consumer, performance additives industry and do command brand name. Similar to making a flavour of ice cream and taste addiction, there is lot of R&D required and IP is valuable for many years.

A very long list of PhD chemists working with Excel Polymers affirms the super specialized nature of Elastomer industry. NP margins of Puneet’s principals are upwards of 10% meaning not bottom of the food chain commodity.

Puneet Resins

It has only a handful of its own specialised polymers like Vulconoil and Vinoprene. Bigger companies have dozens of specialised compounds. It has earned most of its revenue from trading activities of products from its principals. They are expanding production line as per BSE announcement in Jan 2011 to cater to increasing demand. The company has yet to prove itself as a learning, lean and continuously improving organisation to achieve scale and respect in this industry.

Positives are :

Low equity base
No equity dilution
No debt
Promoter increasing stake from open market
Dividend declared in 2010
Chance of increasing offerings from Excel through Puneet

Negatives:

Less liquid market for stock
Link to underlying industry cycles such as auto
Culture of scientific research and innovation has to be maintained to lead
Mainly into trading as yet

Can it be another Mayur uniqouters or Astral Poly? Views invited

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2

Vivek,

How do you rate managment quality of Puneet Resin ? I am tracking one of their group company Rishiropp rubber . They are continues buyers in the open market last few qtrs and result also improving slightly .As per my knowledge promotor group is not that much reliable.Please share your view

3

I had a quick first look. Some observations:

1). Recent 5 year history is great. Impressive move up in efficiencies on all fronts, both margins and profitability. Practically debt free too

2). The 5 yr record is so good that it sort ofcamouflages the blip in FY10, where sales floundered.

3). Company has been around since 1984, or 25 years. Still a 50 Cr company in FY11?

Those tracking the company please help explain the following:

a) What has changed in the last few years that was absent in the last 20 years?

b) Reasons behind the blip in FY10

c) How much of contribution comes from manufacturing and from trading, respectively?

d) What is the outlook on sustainability of its performance? It is a very small company

Please also look at Interest & Finance charges vs Debt. Seems disproportionately high. At first glance, this is the only thing in the numbers that seemed odd.

Certainly worth further study.

-Donald

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http://multibaggersindia.blogspot.com/2011/02/elastomer-industry-and-puneet-resins.html

From Amit Arora’s blog. Donald -Can we invite Amit to comment more?

Elastomer Industry and Puneet Resins

Elastomers can be of various types. Thermal, High Performance etc. They can be commodity or specialised which are distinguished by exceptional chemical, mechanical and thermal properties. Dupont, Bayer, Zeon and Polyone are respected names with significant market share in West. PolyOne has annual revenues of 2 Billion $. PolyOne ranks as North Americaas largest compounder with a market share estimated at 10-11 percent. Its distribution unit also ranks among North Americaas largest.

Excel Polymers was a spin off from PolyOne in 2004 as a non core business. It has very specialised business and Lion One Chemical which bought it from Polyone has made 4X profits on its sale of Excel Polymers to HEXPOL in December 2010. Excel Polymers recorded annual revenues of 350 million $ in latest fiscal.

Excel Polymers isn’t as commodity a business as it appears, i.e. collection of rubber from trees and selling it. Even though it makes intermediate products and not consumer brands, Elastomers require R&D. They make B2B segment rubber products for medical, transportation, space, consumer, performance additives industry and do command brand name. Similar to making a flavour of ice cream and taste addiction, there is lot of R&D required and IP is valuable for many years.

Products of elastomer industries are not an array of items. They are solutions to the challenges some or the other industry experienced. As new products are built which require new chemical, mechanical or thermal property, elastomer manufacturers have to concoct a new recipe for the solution.

A very long list of PhD chemists working with Excel Polymers affirms the super specialized nature of Elastomer industry. NP margins of Puneet’s principals are upwards of 10% meaning not bottom of the food chain commodity.

But then one could say, sage of Omaha prefers Johnson and Johnson whose brands are inside our minds to Dupont or 3M, majority of whose brands are in minds of just B2B populace. True, former is without a doubt better, since it does not have to innovate decade after decade. But its only truly better for an investor if its available at reasonable price relative to underlying value and growth rate.

In 1990s the industry experienced consolidation and now seems set to sail for above average growth rates of existing leaders. I am still learning more about this industry.

This should give a brief overview of Excel Polymers

http://www.rubberworld.com/RWvideo.asp?vid=excel#Page

Puneet Resins

It has only a handful of its own specialised polymers like Vulconoil and Vinoprene. Bigger companies have dozens of specialised compounds. It has earned most of its revenue from trading activities of products from its principals. They are expanding production line as per BSE announcement in Jan 2011 to cater to increasing demand. The company has yet to prove itself as a learning, lean and continuously improving organisation to achieve scale and respect in this industry.

Positives are :

Low equity base
No equity dilution
No debt
Promoter increasing stake from open market
Dividend declared in 2010
Chance of increasing offerings from Excel through Puneet

Negatives:

Less liquid market for stock
Link to underlying industry cycles such as auto
Culture of scientific research and innovation has to be maintained to lead
Mainly into trading as yet

5

http://multibaggersindia.blogspot.com/2011/02/puneet-resins-part-2.html

Amit Arora seems to have done lot of work. His blog is an excellent resource for investors.

Puneet Resins - Part 2

After a bit more legwork and probe on rubber industry my erstwhile belief that hot companies are privately held or concealed inside families gained more strength. While the tyre based rubber industry is dominated by less than 10 players, non-tyre rubber industry is fragmented amongst 100s of unorganised players.

Some people are satisfied with their lives and the majority unsatisfied all their lives, promoters are people hence they too fall in those categories. Its somewhat myopic really on their part to hide their fortune, penny wise pound foolish one could say, to not participate in shareholder friendly activity since doing so in short run would result in dividend outgo, hiring a few PR personnel, paying income taxes, sharing a small part of their growing fortune, something they ethically ought to do (since they were the ones who came with a begging bowl to capital market as opposed to partnering with like minded entrepreneurs) but over long run would help them build giant organisations, given that they also possess business acumen to back it up.

After a little more probing I discovered that Rishiroop Group are actually rolling in dough. Swimming in the proverbial ocean of dollar bills like uncle Scrooge. They have the most extensive distribution network in non-tyre industry.

Half a dozen group companies are listed onhttp://rishiroop.com/group.asp?Qrystr=group

The one company you want to own in group and can’t own is Rishichem. Their principals are crme de la crme of the world for Rishiroop’s distrubution channel of non-tyre based rubber products. Dow Corning, Dupont, ExxonMobil, you name it…
http://rishichem.com/principals/principals.asp

Anyhow, I feel that ( reserve the right to be wrong ) there may be a change of heart on their part and more business may be done through listed entities like Puneet Resins Ltd. and Rishiroop Rubber Ltd. Their son Aditya Kapoor, who completed his education in Europe and the US has joined business and has been recently appointed as an MD for Puneet Resins. I am not lame and gullible enough to fall for the fact that merely studying in a western country teaches you good corporate governance principles or makes you a better person. His father, Arvind Kapoor too completed B.Tech from IIT and M.Tech from the US, has run the business, all the while listed companies were in losses (at least for retail investors and IT department !) while the children completed education from the most exotic schools in Switzerland !

Lets keep them on radar.

_Gujarat Reclaim and Rubber Products Ltd_and_Balakrishna Industries Ltd_look excellent, solid, mighty in rubber for long term players.

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Puneet resin 70% of turnover comes from trading n 30% from manufacturing which is meant for exports .Most of the imports are from Korea it seems.

Exports are done after value addition on imported RM n is the brainchild of Aditya kapoor the CMD son.The earlier era of 80s n 90s were time of opaque accounting so maybe now the management is getting ethical due to changed environment of India.

But no doubt about opportunity as most of their products are having huge demand as soles in footwear sector n replacement & OEM demand in auto sector.

Competitive advantage also seems to be there due to few brands plus distribution strengths plus the age old relationship with international majors n hardcore experience in the sector.

Management now buying their own stock is a major positive.

Most importantly the entry price at present is so cheap that lots of imponderables are automatically taken care of.

7

http://www.puneet.in/profile/financial_results.asp

Impressive AR

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It seems that the era of dominance of Mahendra Kumar kapoor the chairman n the practice that were followed is now coming to an end.

His Son Arvind kapoor IITian & grandson Aditya kaopor believe in sharing wealth with shareholders.hence the turnaround for last few years.Things shud improve further henceforth.

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PUNEET RESINS CURRENT MARKET CAP IS AROUND 22 CRORES.

CMP 41.

EQUITY IS LOW AT 5.22 CRORES WITH 52.2 LAC SHARES OF RS 10 OUTSTANDING. PROMOTER HOLDING IS 54.73% WHICH HAS SEEN SLOW INCREASE IN LAST FEW QUARTERS.

DIV FOR FY 11 IS RS 1.50. LAST YEAR IT WAS RS 1.2

EPS FOR FY 11 IS 9.71

ROE FOR FY 11 IS IN EXCESS OF 40.

DEBT IS NEGLIGIBLE, PRACTICALLY NIL.

LAST FIVE YEARS RESULTS FOR PUNEET RESINS.

YEAR

07

08

09

10

11

SALES

10

13

25

25

53

OP

0.8

1.62

3.12

3.77

8

NP

0.1

0.36

1.43

2.46

5.2

ROCE

7.37

13.14

34.43

46.49

75.42

LAST SIX QUARTERS RESULTS

QTR

DEC 09

MAR 10

JUN 10

SEP 10

DEC 10

MAR 11

SALES

5.65

8.3

9.5

12.1

15.27

15.23

OP

0.77

1.3

1.63

1.67

2.19

2.52

NP

0.61

0.6

1.17

1.12

1.36

1.6

WHATEVER THE MANAGEMENT IS DOING NEEDS TO BE COMMENDED BCOS THEY SEEM TO BE DOING THINGS RIGHT.

AND IT HAS A WONDERFUL CHART TO GO WITH IT. LOOKS LIKE IT IS HEADED FOR GOOD TIMES AHEAD.

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Vivek,

Thank you very much for sharing the info. Could you please share the reasons for your confidence on Aditya kapoor? Does the company performance is anyway related the rubber prices in international markets. ROCE went up exponentially in the last five years. Does it point any change in trading and manufacturing mix? I guess the company is something different in the last 5 years which it had not done before. If so, is it sustainable? If my understanding is correct, Aditya came on board only recently.

Thanks in advance for your help.

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can someone say how puneet resins compares with Indag Rubber ?

12

Puneet Resins net profit rises 40.18% in the September 2011 quarter


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Hi All,

I noticed this company just last week. The numbers are too good at the first sight. Any updates on the company/management/performance since the last post? When the numbers seem to be so good, discussions on the same may continue :slight_smile:

Regards,

Jigar

14

The ARs do not explain everything in detail. A lot needs to be found out regarding this company viz:

1). Reasons for a sudden turnaround in the business since last 4-5 years.

2). Current percentage of trading & manufacturing mix.

3). Over the sustainability of such performance in future.

4). Competition, etc.

I request senior investors and others familiar with this business/company to continue the discussions. Also, we can try for a management meet once.

Regards,

Jigar

15

Numbers looked good until FY12.
High ROE/ROCE, High dividend yield. Zero debt.
But their recent performance is not very good.
No q-o-q growth for the last few quarters.
Topline reduced by 30% in Q1FY13

:))

Regards,

Jigar

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16

Reviving an old thread…here’s my analysis of the current situation:

Rishiroop Ltd (RRL) is amalgamation of Rishiroop Rubber Intl Ltd (RRRIL) and Puneet Resins Ltd (PRL). As part of the deal, Optionally Convertible Preference Shares (OCPS) alloted in ratio of 3:5. i.e., 3 OCPS of RRL (aka PRL) for every 5 equity shares of RRRI. These OCPS can be converted to equity shares at 1:1 ratio.

Shares Outstanding

As of June 30, 2015:

RRL (aka PRL) - 5,215,800
RRRIL - 11,839,857 (Converted into 71,03,914 OCPS of RRL)

As of Nov 18, 2016 (i.e., after partial conversion):
RRL - 7,637,162

After full conversion (end date 23-Feb 2017), Total Outstanding could become 12,319,714

Market Cap @ CMP - 36.5 x 12,319,714 = 449,669,561 = Rs 4496L

RRL has short term and long term investments in Bonds, MFs and Equities. As good as liquid cash.

Non-current Investments - 2716L
Current Investments - 464L
Cash and cash equivalents - 280L

=
Gross Cash & Liquid investments - 3460L

  • Total Liabilities (other than Payables) - 95L
    = Gross Cash & Liquid investments - 3365L

Of course, the market value of these instruments could be slightly more or less. Market value of quoted investments was on the higher side (about Rs 3647L) in the 2015-16 annual report.

At 12,319,714 outstanding shares, there’s cash (or liquid investments) of Rs 27 per share.

Net Profit for last FY = 246L
Net Profit for last half-year = 113L
Net Profit for last quarter = 68L

A couple of questions:

  1. Is it possible that some of the OCPS may not be converted by 23-Feb 2017? If yes, what happens to these preference shares? Do they expire and become worthless?

  2. Are there any advantages (other than paltry 1% dividend) to buying these preference shares (they are trading on BSE) over common equity shares?

Disclosure: Invested.

PS: The title for this forum thread says “Potential Multibagger.” I don’t intend to imply this is a potential multibagger…I only feel its slightly mispriced.

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Answering my own questions using an excerpt from the AR:

Optionally Convertible Preference Shares (OCPS) : The Company has issued only one class of OCPS having par value of 10/- at a premium of 34/-. OCPS are listed on BSE Ltd. OCPS are convertible into equity shares at the option of the holder within 12 months from the date of receipt of trading approval from BSE Ltd i.e. upto February 23, 2017. One OCPS is convertible into one equity share.

Non converted OCPS after the expiry of 12 months from the date of receipt of trading approval from BSE Ltd will be converted into equivalent number of Redeemable Preference Shares (RPS). Tenure of RPS would be 6 months from the date of allotment of RPS. Redemption of RPS would be done at a price to give 6% annualized return from the date of allotment of RPS on face value of 10/- and premium of 34/-.

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18

Any expert view in recent yearly result. It looks good on the face of it.

19

Even Q1FY18 was quite good.

20

You should look into insider trading disclosures for this scrip here : http://www.bseindia.com/corporates/ann.aspx?scrip=526492%20&dur=A

Someone from the promoters’ group ran up the stock price before selling in the open market. When I initially bought this stock, I felt the management / promoters were ethical and business had decent earnings with plenty of cash. Now, I am not sure about promoters being ethical.

Disc: Still invested.