why long term debt in not considered while calculating the liquidation value of a company?

What are your thoughts on Rain Industries and HIL ltd? for the deep value investment opportunities.

AGI (established in 1960) is engaged in manufacturing and distribution of packing products comprising three diverse segment namely glass containers, PET bottles and security caps and closure. Co has 20% market share in organised glass packing industry. The co is projected to give returns of 12% next year

Business Model and Industry Analysis

Overview:

The company is in packing industry where majority of revenue comes from glass container. The company has grown itself by debottlenecking and relining of existing furnace to increase the capacity utilisation. Further it has also filed for acquisition of HNG a bankrupt co which is pending since long. Below in its three business segments-

• Glass Packing (89% of revenue): Major source of revenue is from alco bev industry contributing to 75% of revenue followed by food and beverages and pharmaceuticals. It has also ventured into speciality glass segment for perfumes and cosmetics which generate higher margins
• PET Bottles: Similar industries are served in this segment as well. Co outperforms its competitors due to better quality. It also includes high end plastic which looks like glass. Such plastic is even expensive than glass
• Closures: Co has diversified itself by adding cap closures to its packing business. It has partnered with European organisation to enhance security features of closures and identify counterfeiting attempt

Industry Growth:

The glass packing industry is expected to grow at 7% CAGR. Alco bev industry being co’s major customer is experiencing rapid growth. Further the glass packing gives aesthetic appeal to its consumers and is also a way now to provide a distinguish and captivating glass packing to create a brand image. It also facilitates to enhance shelf appeal of customers

Capacity Utilisation:

The company has 7 plants with glass packing factories (3) in Hyderabad and others in Uttarakhand and Karnataka. Co operates at 90% capacity utilisation and keeps on increasing its furnace capacity continuously by relining and debottlenecking. The company’s capacity stands at 1,754 TPD (tonnes per day) for its glass packaging division (including specialty glass capacity of 154 TPD), 11,892 TPA for its plastic packaging division, 780 million of small cap pieces and 132 million of large cap pieces

Opportunities:

• Export Markets: AGI Greenpac has sustainable practices in packing industry and is preferred partner for international clients. It is focused to improve its export share in USA, Australia few European and African countries.
• HNG Corporate Insolvency: Insolvency of leading player may lead to market share gain. Clients of HNG might divert to AGI to ensure glass container availability
• Speciality glass manufacturing: By foraying in this segment, co has moved up in value chain. This business will cater to high end perfumes and cosmetics segments alongwith high end pharma including premium spirits. This business will also help in expansion of exports. Further this business has higher margins (1.8x the original ones)

Risk:

• HNG Acquisition: the acq would require around ~2200 cr and will be largely funded by debt. The benefits of this acq includes larger client base, better pricing power and cost efficiencies. The risk is that repair and maintenance requirement for HNG is unknown and might prove as a hit to existing profit margins. Further HNG was a loss making co due to its high power and fuel cost
• Input Price Pressure: Soda Ash is a major raw material with high price volatility. Further power and fuel is a significant cost item which has seen price surges although which management has managed well by switching to alternate fuels. This fluctuating prices impacts margin

Future Expansion:

The co has planned capex of Rs 250 cr which will be funded by internal accruals. This funds will be utilised for relining of furnace and to expand capacity to meet increasing demand

Management:

Management is very money wise as it prefers to debottle than to setup a plant. Further they are strategic by foraying in cap closure segments as well as speciality glass segment. They have maintained their profit margins by switching to alternate fuels during rising fuel prices. Management draws around 7% on net profit as salary. Promoters has 60% unpledged shareholding

Institutional Investor:

FII and DII continue to hold around 9% in the company

Historical Data and Financials

Profit N Loss Account:

* Sales have grown at CAGR of 24% for last 3 years
* Margins have continuously improved and stands at around **10%** currently

Balance Sheet:

* Interest coverage ratio is **6 times**
* Co is continuously reducing its borrowings every year
* Debtor days and Inventory days have improved
* Working Cycle and Cash conversion cycle have improved YoY
* Current ratio stands at 2 times.

Cash Flow:

* Co has a very healthy CFO/PAT of 1.83 times
* Co is generating enough accruals from operations to fund its capacity expansion and reduce debt

Valuation and future potential:

Valuation:

Should wait for price to come at 660 (38.81*17)

Disclaimer: This is a study report, not for any decision making or investment advisory.

Made by: Nidhi Devidan

Date:11th August 2024

An informative article discusses the US BIOSECURE Act and its effects on China’s CDMO industry. It highlights that Indian CDMO companies are set to gain, noting a substantial rise in interest and site visits from major pharmaceutical and biotech firms in India. It may take 2 to 3 years to play out this theme, but surely it will.

CDMO industry post BIOSECURE Act: who will take WuXi’s place?.

Carysil Ltd –

Q1 concall and results highlights –

Revenues – 201 vs 141 cr, up 41 pc

EBITDA – 37 vs 27 cr, up 37 pc ( slight dip in EBITDA margins due ongoing Red Sea issues and costs related to integration of their US subsidiary – United Granite )

PAT – 16 vs 12 cr, up 33 pc

Quartz Sinks capacity utilisation stood at 70 pc

The contract with Reece Australia and Howdens UK are progressing well ( these should bump up company’s revenues going fwd )

Exploring new Mkts like – Turkey, Croatia, Vietnam for Quartz sinks business

Volumes sold in Q1 –

Quartz Sinks @ 1.55 lakh vs FY24’s Qtly avg of 1.41 lakh

Steel Sinks @ 0.37 lakh vs FY 24’s Qtly avg of 0.31 lakh

Kitchen appliances @ 0.14 lakh vs FY24’s Qtly avg of 0.137 lakh

Export : Domestic sales breakup @ 82:18 vs 80:20 in last FY

Product wise sales break up –

Quartz sinks – 45 vs 52 pc
Steel sinks – 11 vs 13 pc
Solid surfaces – 32 vs 25 pc
Appliances – 11 vs 11 pc

Revenues from overseas subsidiaries –

Carysil Products UK – 31 cr ( selling steel and Quartz sinks )
Carysil Surfaces UK – 42 cr ( selling solid kitchen surfaces )
United Granite US – 21 cr ( selling solid kitchen surfaces )

Recently concluded a QIP of 125 cr. This amount shall be utilised for acquiring new moulds for Quartz sinks, expanding appliance and faucets manufacturing capacity and for brand building in local mkts

Company expects their Qtly revenues to improve going into Q2,Q3,Q4 ( vs the 200 cr clocked in Q1 ) – subject to no major geo-political disruptions

In Q1, domestic sales have grown by 16 pc YoY

If the Red Sea issue doesn’t worsen further, company’s margins should see an upward trajectory going forward

Management believes that Quartz Sinks business has a long growth runway ahead ( globally ) and the company is extremely well positioned to benefit from the same

This year, the company is expected to do 150 cr of sales from India. Aim to do 300 cr / yr of sales from India Mkt within next 4 yrs

Disc: hold a small tracking position, biased, not SEBI registered, not a buy / sell recommendation