Zenith Fibre

Hi All

I have started researching this company. I was not able to find the thread, or i am not sure how to search valuepickr forum but was not able to find a thread on this company.

Please find the financials here


Company is the biggest manufacturer of PPSF which is heavily used in manufacturing high quality roads, diapers, undergarments and many more. Please find more details of the same here


and more about the company’s products here:


They have a good track record of dividends and the contacts attending company’s AGMs have given confidence about the character of the management. A very conservative management.

MArket CAP : 16.6 cr

Cash on books : 14 cr

Debt : 3.3 cr


No big growth in sales from last few years, sales trigger depends mostly on govt / nhai announcing mandatory use of PPSF in roads / highways

Till then it can be a good dividend yielding stock with buy price around 28.

I don’t hold this stock and this is not a recommendation for the same. I want to know the opinion of senior investors present on the group and learn from it.



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If the stock has been discussed earlier then please guide me to the post.



why is the compnay having a debt of 3.3 cr when it has cash of 14 cr . Why not retire the debt ?

they took debt in latest year…need to check why…but i will not consider it as a big factor in consideration…any other comments?

Some more info:

  1. There is no CEO assigned for the company and hence it is run by the board of directors

  2. Board of directors draw zero salary from the company, they are only given sitting fees

  3. Board of directors hold very less (almost negligible) shares of the company

Trying to highlight the good corporate governance of the company…

And considering 1.46 cr net profit for jun qtr and 1 crore for september earned till date (expected) when combined with 14 cr cash, we are getting the operating business for almost zero…

seniors please advise…thanks


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hi achal,

regarding debt, maybe it is under TUF scheme of govt. I am not sure , just guessing.

I didnot find any expansion plan of the company in the FY 14 AR , nor do i see much addition in fixed assets, capital work in progress. What is going to be the trigger in earnings and operating margins esp since the track record is not exciting ?

Also, nobody will like to work for free. The board of directors attend meetings which take place once in a while and are not involved in the regular operation of the company. The management will run day to day operations. It is strange that there is no executive director in the company. Also, no director will work for any company for wages of abt 1 lac per year. Either he is not doing anything other than attending the meetings or he is paid by other means. I dont consider this as good corp governance.

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hmmm…good points manish…let me do some more research on corp governance part…

trigger for earning will be

  1. replacement of polyester by PPSF which in annual report they have been continuously quoting as not happening as of now

  2. govt / state making the use of PP mandatory in building roads (as is the case in countries like US/ UK etc.) …again not sure when it will happen…but if it happens than its going to zoom up like anything

  3. even the above predictions not coming true…i believe that there is good amount of safety at current price…and even a small change in scenario can change the eqn…


I have tried to value this share. The Operating cash flow on an average is around 3.5 crores per year. Add to this you have other income of around Rs. 1.91 crores.

The company is spending on average 1 crore per year on fixed assets and another 2 crores on incremental working capital. So the free cash flow in hand is around 2.5 crores per year which translates to around Rs. 5.74 per year

So assuming the company does not grow at all using a discount rate of 10 percent the value should be around Rs. 58.

From a static point of view against a market valuation of around 13.75 crores the net debt is itself around Rs. 10 crores. So as it is rightly pointed out the whole operations are virtually free at this cost.

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I have a background in the textiles space and nothing can get more commodity in nature as compared to the fiber space. With some exposure to purchasing fibers, I can say that there is absolutely no loyalty whatsoever to any supplier. The company offering the next cent of discount usually bags the order and this makes it extremely difficult to any company to have any kind of pricing power. The fibers have no control on raw material whatsoever, as they are generally determined by the movement of crude - which no company has any control over. On top of all this, the industry is extremely capital intensive and margins are thin to non-existent.

Regarding using fibers in roads, are you the Government has mandated the use of PP fibers only? PP fibers cost a lot more than PET fibers and due to their lower melting point are also a lot less desirable.


Thanks Abhishek and Hrishikesh for your inputs…

@hrishikesh - i agree with your statement that the operations are free of cost

@Abhishek - i am still learning about this sector, but as you have said that this company is not having any competitive advantage, i am forced to think whether it is worth to allocate a part of my limited money to this company :)…again thanks for you inputs and will revert back if i will have something to add…

Hi Achal, thanks for initiating the discussion.

Few observations -

as per this article, management had plans to more than double capacity in FY12 and was expecting revenues to go up to 75Cr in FY13. Not sure on what happened to capacity as this data is no more reported. And, revenues are still languishing at ~60Cr. Management does not even touch upon this topic in annual report.

Dividends - not sure why there is no significant increase in dividends over the years and a cut in FY14 does not look good given extent of decline in PAT and so much cash on BS

Fixed assets - plant is highly depreciated. return profile looks ok (average at best) may be because of depreciated plant. Companydoes not have any plans to put more capex in immediate future, not sure what what is management thinking in terms of future growth of company.


any comments on the results?

  1. this company is likely to do well.
  2. polypropylene prices have fallen off by 15 percent.jun 15 should be good.
  3. company has cash of 18 cr
  4. mcap of 45 cr
  5. div yield of close to 3 percent
    6.believe enough margin of safety
  6. request if ayush sir can comment on this one

result is flat for jun 15

@RajeevJ, You seem to have good exposure to this company, would be helpful to have your view points that helped gain conviction.

@Akshaykumar, I had bought bulk of my shares in the Co. in the December 2014 qtr, at much lower levels. To be honest, I think I bought the “Price” more than the “business”! The stock ran up recently with decent volumes & gave me the opportunity to exit. Nothing wrong with the story though, but I don’t get the valuation comfort at current levels. I do intend to attend the AGM, which should happen sometime soon. Hope the mgt. is willing to discuss it’s future plans & how they intend to use the cash in the books. Unless there is clarity on that, staying invested in the Co. is more out of hope.

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Source:- Dr. Vijay Malik’s Blog…

Zenith Fibres Limited

trading at PE < 10,
price to sales < 1
and peg<1.
zero debt company,
pays full tax,
10y CAGR of sales,profit, eps are 9,11 and 15 respectively.
NPM over the years is between 6-8%,
cCFO is 80% of cPAT,
consistent dividend payer at 20% payout.
10y ROE is 15% and
10y ROCE is around 20%.
Mgmt seems decent - no scandals, pay is nominal, mgmt seems
bullish on prospects from 2014 annual report
no govt restrictions as far as i could see

Zenith Fibres Limited has been growing its sales consistently
at a moderate pace of about 10-15% year on year since last 10 years (FY2006-15).
However, the profitability margins of Zenith Fibres Limited have been
fluctuating over the years. Operating profit margins (OPM) have been varying
from 8-13% and net profit margins (NPM) have been fluctuating from 5-9% over
the years. Profitability margins have been displaying a typical cyclical

Such fluctuating margins are characteristic of companies,
which have low bargaining power with their customers. In such businesses,
companies find it difficult to pass on the increase in raw material costs to
their customers quickly and thus take a hit on their profitability margins.

As mentioned by the management in FY2014 annual report, the
company’s product, polypropylene (PP) is facing competition from polyester

“Polypropylene fibre industry was not growing at the same
rate as Polyester fibre because many sectors where PP should be used is
replaced by Polyester because of lower prices”

However, the company seems to be positive about prospects of
Polypropylene as it feels that polypropylene is irreplaceable in certain
sector. The management states in FY2015 annual report:

“Certain novel uses have been found in some sectors where
use of PP fibre cannot be replaced and this augurs well for PP fibre industry
and it should definitely reflect in the growth in the future”

Zenith Fibres Limited has been paying taxes at 34-36% rate,
which is equal to the standard corporate tax rate in India. This is a good

Over the years, Zenith Fibres Limited has been
reflecting improved utilization of fixed assets. Net fixed assets turnover (NFAT) has
been improving from 4.48 in FY2007 to 11.77 in FY2015.

Inventory turnover ratio as well as receivables days have
been showing cyclical pattern in their movement over last 10 years.

Inventory turnover has varied from 16.2 in FY2007 to 10.9 in
FY2010, then increasing to 16.2 in FY2012, again falling to 11.7 in FY2014 and
then improving to 13.5 in FY2015. Similarly, receivables days have also been
showing cyclical movement between 23 days to 37 days over the years.

Such kind of cyclical movement in working capital is noticed
when the company as well as its customers are both impacted by similar low
bargaining power with their respective clients in the entire supply chain.
Customers delay payments to suppliers at times of low margins characterized by
high commodity prices and receivables days increase whereas in times of low
commodity prices, the working capital situation improves over the entire supply

If we notice the financial performance of Zenith Fibres Limited
over the years, then we would notice that it has not been able to covert its
profits into cash flow from operations over the years. Zenith Fibres Limited has PAT
for last 10 years (FY2006-15) of INR 32 cr. whereas the CFO over the similar
period is INR 25 cr.

However, the fact of money getting stock in working capital
has not had any deteriorating impact on the balance sheet of Zenith
Fibres Limited as the company has not been done any capacity expansion in last 10 years. All the capex that has been done by Zenith Fibres Limited seems
to be maintenance capex to run the existing plant at Vadodara, Gujarat

During FY2006-15, Zenith Fibres Limited realized total
CFO of INR 25 cr. and out of it Zenith Fibres Limited had to spend INR
6 cr. into capital expenditure, thereby releasing free cash flow (FCF) of INR 19
cr. as surplus for shareholders out of which it distributed INR 7 cr. as
dividend to shareholders (including dividend distribution tax). The balance surplus
cash flow of about INR 12 cr. can be witnessed as part of cash &
investments of Zenith Fibres Limited, which stand at about INR 20 cr. at the end
of FY2015.

This ability to generate free cash flow (FCF) after meeting the
limited capex has ensured that Zenith Fibres Limited is a debt free company. The
same finding gets reiterated when we analyse the Self-Sustainable Growth Rate (SSGR)
for Zenith Fibres Limited.

Self-Sustainable Growth Rate (SSGR) of Zenith Fibres
Limited is about 30-40%. As mentioned in the article on Self-Sustainable
Growth Rate, SSGR does not factor in working capital changes. However, we can
estimate whether funds are being tied up in working capital by comparing cPAT
with cCFO.

Analysis of SSGR indicates that if Zenith Fibres Limited can
manage its working capital management and operating efficiency properly, then
it can grow continuously at about 30-40% growth rate without creating
additional debt burden on the balance sheet. As Zenith Fibres Limited has been growing
at a rate of 10-15%, it has been able to manage its grow story without
leveraging its balance sheet.

Zenith Fibres Limited has been paying regular dividend to
its shareholders. Company has been increasing its dividend payout with
increasing profits. It amounts to sharing the fruits of growth with
shareholders. These are signs of a shareholders’ friendly management.

Zenith Fibres Limited seems a professionally run company, as the
founder Rungta family does not hold executive position in the company. Entire
senior management seems to consist of professionals.

Shri S.S. Iyer CEO, Shri K.D Sharma CFO, Shri Shailesh
Pandey COO and Shri Praveen Bukyalkar CMO seem unrelated to promoters Rungta family.Mr. Amitabha Ghosh, a retired Governor of Reserve Bank of
India, is part of the board of directors.Zenith Fibres Limited is the first company that I have analysed
where the percentage increase in salaries of employees: 11.20% is higher than
that of key management people (KMP): 5.62%

Zenith Fibres Limited faced the loss of a key resource in
FY2015, when the founder chairman of the company Mr. Ajay Kumar Rungta died in February
2015. However, the presence of his sons Mr. Rajeev Rungta (Age 54 years) Mr.
Sanjeev Rungta (current Chairman) on the board of Zenith Fibres Limited indicates
continued promoter guidance for the company.

The management of Zenith Fibres Limited seems
conservative as it did not go for rampant capex in the past and has generated
free cash flow, which it shared with shareholders as dividend. As a result the company
has seen tepid growth but with a strong balance sheet with nil debt.

The market capitalization of Zenith Fibres Limited has
increased by INR 33 cr. against retained earnings of INR 24 cr. over last 10
years (FY2006-15). Management has created a value of INR 1.38 for the shareholders
from every INR 1 of earnings retained & not distributed to shareholders.

Zenith Fibres Limited is currently available at a P/E ratio
of about 7.2, which offers a margin of
safety as described by Benjamin Graham in his book The Intelligent Investor.

P/E ratio
of 7.2 is low, however considering no expansion in last 10 years, the
visibility of Zenith Fibres Limited growing at a fast pace of 20-25% & above
are limited, unless the company comes up with aggressive capex plans. Looking
at current state of moderate growth with low capex, the market,s apprehension in
assigning higher P/E ratio to Zenith Fibres Limited seems justified.

Overall, Zenith
Fibres Limited appears to be a company growing at a moderate pace, with fluctuating
profitability margins & operating efficiency. It is run by a conservative
management which has not done rampant capacity expansion over last 10 years and
have met its capex requirements from its cash flow from operations and able to
generate free cash flows. Zenith Fibres Limited has a very healthy SSGR, which can
ensure that it can grow at current moderate rate without needing debt to fund
its growth, if it can manage its working capital efficiently.

However, in order to generate higher growth rates of 20-25% &
above and to generate significant wealth for shareholders, Zenith
Fibres Limited needs to expand capacity of its operations. An investor should
keep a track of the company to follow up on any capacity expansion plans it may
have in future.

These are my views about Zenith Fibres Limited. However,
you should do your own analysis before taking any investment related decision
about Zenith
Fibres Limited.

Additionally, the investor should keep track of the future
performance of the company for signs of improvement or worsening as part of
their monitoring exercise. She may use the steps explained in the following
article for monitoring stocks in her portfolio.

Disc:- No Position…in watchlist…


Stock has been hitting upper circuits since the publishing of results on Nov 7 which were positive. Not able to buy the shares. Has given more than 25% returns in a week.

Discl:Not Invested at this time

Mailed management a week ago seeking information for utilization of surplus cash in balance sheet.
No response till date. No reply even after asking management on telephone to look into the subject. :confused:

Disc: Invested 3% of PF at below 100 levels a month ago but planning to exit now due to lack of clarity for growth drivers in future.

Was wondering if still some folks are tracking this shared? It came to the screener list with the below query

Return on invested capital > 25% and
Earnings yield > 15% and
Book value > 0 AND
Average return on equity 10Years > 15% AND
Return on equity > 15% and
Market Capitalization > 15 and
Price to Earning > 5 and
Promoter holding > 50% AND
Debt to equity < 0.5

So I was curious to find out what the company does. When I opened the 2015 AR, the below statement from management looks to be so complacent.

  1. Threats and Concerns
    Your Company is committed to manufacture and deliver
    quality products strictly as per requirement of the
    customer and have the system to continuously get the
    feedback from customers and endeavour to bring
    continuous improvement in process performance and
    product quality. The Company also meets international
    quality standards and product specifications as
    required by foreign buyers. All repeat orders are being
    placed by the customers in domestic as well as export
    markets. With established production base of almost
    25 years we are in a position to maintain production
    and supply of quality products smoothly. The Company
    has benefit of lower cost of production, its long standing
    and can match the prices suitably as per pricing policy
    as and when required.
    For the above reasons, no major threat is overseen
    and your Company is confident to face any threat from
    competitors. The Company is also maintaining liquidity
    to meet any unforeseen exigencies.

The stock price have become more than 6 to 7 times in last two years since this thread was initiated.
The company looks to be fitting so many of the parameters of investment. How to take a call for investing in these kind of companies? Bit curious and if some seasoned member can slice and dice this, it would be helpful.

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