Likely scenario after completion of restructuring and aftereffects :
| FY26 or 27 | |
|---|---|
| Sales | 4000 |
| OPM | 15% |
| Operating Profit | 600 |
| Other Income | 3 |
| Depreciation | 112 |
| Interest | 1 |
| Profit before tax | 490 |
| Tax | 26% |
| Net profit | 362.6 |
| 1.80% | |
| Maintenance capex | 72 |
| Owners earnings | 402.6 |
While this is not going to be exact, but it is showing us an approximate picture,
- Interest expenses will go down close to zero as company will pay off entire debt, so interest expenses of nearly 100cr will go to zero and entire amount of this money will flow towards bottom line through tax expenses.
- Depreciation will reduce proportionately to sale of foreign assets, so that amount will also flow towards bottom line.
- As share of value added product will rise, margins are going to increase, while I have used 15% , potential is over & above that.
- This company is struggling for growth capital from many years and main reason for that was demand of maintenance capex from the established products or commodity products, company was generating around 200 to 250cr owners earnings in recent years and out of it around 100 to 120cr were maintenance capex requirements for the next year. Again much of the remaining money was going into working capital, so they only had a growth capital of less than 100cr from internal generation every year.
Now this scenario going to change, with the owners earning of 400cr in FY26 or 27, much of this money will flow towards growth capex as maintenance capex requirements will reduce and NFAT is going to increase and working capital requirement will reduce, so company can grow much faster in future from internal accruals. - My average buy price is Rs38.xx, so if they pay dividend of 10-12% of net profit as they are doing since many years, my dividend yield will be around 4.5%
- ROE & ROCE are going to improve substantially.
As company will be able to grow from the internal accruals in the future, with share of value added products increasing constantly, will be net debt free, with higher ROCE and future perception of market participants towards high growth LPG, CNG & Hydrogen cylinder business this company can trade at any PE from 20 to 50, I don’t know.
I bought this business in 2019 & 20 at Rs38 mainly because it was exceptionally cheap at future PE of 2, I had no intentions to hold it above 150 but with passing year story constantly evolved positively. promoters started acting rationally, they tried to repair their past sin’s, and their composite cylinder business is too good to have. With its fast growth capability after restructuring at current price it may be trading at 5yr forward PE of 6 who knows.
I sold some quantity at 135 and I regret my decision, I still hold substantial quantity and do not intent to sell it anytime soon. because market is all about future, and as business is getting better & stronger with each passing year I don’t see much possibility to losing money.
Risks: Restructuring doesn’t go as planned, Promoters again start acting irrationally which is rare possibility.
Note: Not a SEBI registered analyst, do your due diligence before buying, only sharing my thought on business and I may be biased. I can be wrong and can change my mind anytime.