Rubfila International - Evolving story of rubber threads

Rubfila international

Rubfila international is the manufacturer of various rubber threads for different applications and industrial adhesives.
Company is jointly promoted by Rubpro of Malaysia and the Kerala State Industrial Development Corporation (KSIDC).
The company was in existence from 1992. The company ran into rough weathers during the course of time and started running at heavy losses and was referred to BIFR when the total net worth eroded.
In 2005, a new group of investors led by Bharat Patel stepped in as promoters. All the liabilities of the banks were negotiated and settled by bringing in additional funds.
A new management team was also put in place to lead the company out of troubles. The New promoters had converted the loan into shares, thereby increasing their holding to 64.11 per cent from 38.87 per cent.
The company came to profit in 2010 under the new management. The company, which suffered a net loss of Rs 7.12 crore in 2008, has cloaked a net profit of Rs 2.77 crore in 2011 under the new management.
The company also declared a dividend of 60 paise per share for the first time since its IPO in 1994.

Strength of the Company are:â

1). Leader in the Domestic Market with Brand Image for quality products (40 % market share)
2). Only manufacturer manufacturing Silicone Coated Rubber thread in India
3). Products meeting Oeko-Tex Standard, (an acclaimed certification in textile sector)
4). Successful development of wide variety of premium niche products (textile threads, threads for furniture webbing, food grade threads for food packaging. Threads for apparel making & diapers)
5). Short lead time for domestic customers. (Strategically located at kerala, where abundant raw material (rubber & latex) availability and proximity to various textile companies located at south India.

Pls look at company website for their product details.

http://www.rubfila.com/index.asp

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etails from ARâ

INDUSTRY STRUCTURE AND DEVELOPMENT

The world market for Heat Resistant Rubber Thread is not badly affected as its application touches the day-todayuse by people.
The production bases are being shifted from Western countries to Asian countries.

International Market scenario:

Global Rubber Thread market is about 1 .20 lacs Tonnes.
Major suppliers are located in, Malaysia, Thailand,India and Indonesia.
The growth rate is expected to increase further as the concept of eco-friendly products is Picking up in third world countries too.
The prices of major raw material, Rubber are still undergoing vide fluctuations during the year under review. However, the company has been able to pass on this proportionately to the finished product.

Domestic Market Scenario:

Domestic market is growing close to two digit levels due to the shift in procurement by the global brands to India.
Rubfila continued to maintain the leadership in market. Rubfila’s products command a good premium in the market for its good quality and brand image.
Rubfila has the advantage of meeting the delivery commitments with very short lead time to its domestic customers.

Investment rationals

1).UNIQE PRODUCTS/MARKET LEADER/DEMAND FOR ITS PRODUCTS NATIONALLY AND INTERNATIONALLY.

2).Capacity expansions under the new management

Existing capacity-6500 tonns as on March 2013.

Expansion plans

6500 tonns to 10000 tonns )- third production line already completed in the first quarter of current financial year.
10000 tonns to 13000 tonns )- fourth production line is expected to complete in 4th quarter of current financial year.
**13000 tonns to 25000 tonns **)- 12 acres of land acquired already for the new manufacturing set up at Coimbatore (latex related products).

**Company management is talking of achieving a 350 cr turn over by 2016 from the current 100 cr .
**
3).Zero debt status, cash and cash equivalents of 30 cr
Promoters are talking of internal accruals for the expansion plans.

What is the source of these expansion figures? Not mentioned in the Annual report.

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Export 5.04 2.01 3.18 4.42 8.34 7.02

Domestic 19.51 36.1 48.41 73.95 85.66 98.93

Total sales29 32.21 24.55 38.11 51.59 78.38 94.71 105.91 135 225 360

Note: 2014,2015 & 2016 sales given as per management talk.

Last 3 Year sale growth - 24.11 %

Last 5 Year sale growth - 32.3 %

Pls look at the below links for expansion plans

kumar,

details given in the latest annual report.CAPITAL EXPENDITURE AND EXPANSION PLANS (page 5),

CAPITAL EXPENDITURE/EXPANSION PLAN
As explained early, the Company has completed the
expansion project for putting up the third production line
and the total cost of the project was Rs. 920 Lacs towards Plant and machinery and Buildings. Out of this, an amount
of Rs. 847.69 lakhs has already been spent and the
Commercial production has started this year. The
Company is also planning to add one more line which is
expected to be completed during the fourth quarter of the
financial year 2013 -14.

Caution :

  1. Net margins may come down qoq and yoy due to tax outgo, company got delisted from BIFR and started paying taxes from last March quarter onwards.

  2. Raw material price fluctuation (rubber & latex),recent heavy monsoons have impacted the rubber production in kerala (short term problem).

Disclosure :

This is my first stock recommendation?/idea initiation.

Am a novice to investment world with just a 3 years of experience that too without any academical background related to investing or finance. Consider it as a novice work, pls correct me if you find any mistakes/discrepancy.I have a starter position in the company, will add on more after more research and improving conviction levels.

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Good work shanid

We have to make a bear case also

And identify if the company is having any moat

I did notice from screener that tax outgo was less

What about competition and pricing power

Disc : I am a novice too

Good work Shanid.

There is pending liability of sales tax of 11.15Cr for 2002-04 while they have made provisions of only 1.47Cr. Also their sales tax assessment is pending since 2008 which again raises doubts. Moreover the taxes going forward are going to increase.

Rubfila Internatinal annonced BSE that they have completed the expansion of 4th production line.The company had increased theircapacitysignificantly in the last one year,if all goes well company would be able to achieve a top line of 200 cr plus in this fiscal year (ie 2014-15)

CMP : 18.60

P/E : 9

ROE : 28 %

ROCE : 32 %

Debt : Zero

Dividend yield : 3 %

FY 2014 expected Performance

Sales - 120 cr (Up 20 % yoy)

Net profit - 9.25 (Down 5 % yoy)

New promoters turn around he company and now looking for growth that toowith internal accurals and without any debt.Promoters accumulated the stock from open market in the 3rd quarter of 2014 indicate thier confidence.

Negatives

  1. I have no idea about the demand situation of their products, as per googling and rubfila websites it seems like a recession proof indutry, check website for details.
  2. Thirdquarter of 2014 they had a labour issue in theirPlakkad plant and plant was shut down for few days.In kerala such issues can crop up always this can badly affect the operational performance of the company.
  3. Raw material price fluctuation and impact ?
  4. Sustanance of dividend,looks like company would require cash for their agressive growth plans, in that case chances are high that they will not give dividends same like last year.

Disclosure :

I personally feel like this small un known company can come to growth path, i have been acumulating the sharesin the recent past (3 - 4 % of my portfolio), am planning to attend the next AGM.I have decided to take it as a learning experience rather than a major investment bet.

regards,

Shanid V H

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Co had come out with an IPO nearly 20 years back n is still in existence albeit under new owners is positive in clearing the 15 year thump rule.

ROCE seems decent .

How big is the opportunity size n is it scalable ?

What’s the moat for the company n does it enjoy full pricing power?

What are the risks n how is the reputation of new promoters? Do they have any other business venture?

Shanid , Ayush n other friends please help out.

Went through annual reports and articles shared by Shanid, nice work. I myself came to valupickr to start a discussion if there wasn’t any on this company, glad to see it already exists thats to you guys.

One quick query, in 2013-14 raw materials’ costconstitute 77% of sales whereas for earlier years it was 70-72%. This took PBT margins down, so is it a secular trend or it was a temporary glitch where input material’s prices went up and company couldn’t do anything about it?

Thanks

Ashish

One thing more, i checked on google regarding promoter Bharat Patel. He is a stock broker, runs a broking company and had been barred by SEBI a couple of times because of share price manipulation of some companies.

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Thanks Ashish for bringing this aspect of the company to notice. Bharat Jayantilal Patel, chairman of Rubfila, was involved in a large number of price rigging cases. He seems undettered despite penalties, as the penalties are too paltry as compared to the money he may be making by manipulations.

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Irrespective of what caused rmc/sales to shot up, it shows rubfila’s lack of pricing power. A clear avoid due to lack of

a. promoter integrity

b. pricing power

Pricing Power i agree, not sure about promoter integrity as KIDC and others are also come under promoter category. Might be a temp phenomena. I went thru the links given by Shanid, so if current turnover is 125 crores and FCF is 9 cr, if turnover goes to 350 cr, fcf can go to 22-23 cr, on current market cap it would be yield of 15%. If company just adds 1 line per 2 years, it can go huge but rubber prices can play spoil sport. Someone told me rubber prices are going down, can somebode here throw some light on the medium term trend?

Dear Ashish,

Regarding promoter integrity i don’t have much idea,two things I found positive.

1).Promoters found buying the stock from open market in the last one year.

2).Make over from a loss making company to a dividend paying company.

When I contacted the company they said that existing capacity is 11000 tons.Company should be able to achieve topline approx.220 cr with this capacity.But achieving 350 cr top line they have to commission new manufacturing setup in Coimbatore,as of now there seems to be no progress.The majorpoint we should understand that there will be a lot of new variables will come to picture for a new manufacturing set up so it is better not to judge future earnings/fcf as per the existing setup.that is the one learning I got from the GRP thread.

I think at CMP there is no margin of safety for fresh buying,let us wait for few more quarters and see how the bottom line improving with full capacity utilisation.

Regards,

Shanid VH

Dear Ashish,

Regarding promoter integrity i don’t have much idea,two things I found positive.

1).Promoters found buying the stock from open market in the last one year.

2).Make over from a loss making company to a dividend paying company.

When I contacted the company they said that existing capacity is 11000 tons.Company should be able to achieve topline approx.220 cr with this capacity.But achieving 350 cr top line they have to commission new manufacturing setup in Coimbatore,as of now there seems to be no progress.The majorpoint we should understand that there will be a lot of new variables will come to picture for a new manufacturing set up so it is better not to judge future earnings/fcf as per the existing setup.that is the one learning I got from the GRP thread.

I think at CMP there is no margin of safety for fresh buying,let us wait for few more quarters and see how the bottom line improving with full capacity utilisation.

Regards,

Shanid VH

Ashish,

Are you attending the AGM.

Am not sure whether I will be able to make it.

Blind spot is raw material price and impact.

Shanid VH

Hi Shanid,

Sorry i wont be able to make it :frowning:

But if u have the number pf person u talking to, we both can prepare set of questions and can have a call, what do u say?

Thanks

Ashish