SHARE PLEDGING WILL PLEDGE YOU TROUBLE.

             SHARES PLEDGING- PAINFUL TROUBLE.

   

                                          

WHILE INVESTING IN A STOCK WE TEND TO FIND OUT THE TRUE  OR INTRINSIC VALUE OF THE STOCK AND COMPARE IT WITH THE CURRENT PRICE .WE TRY TO FIND OUT COMPANIES WHICH HAVE INTRINSIC VALUE HIGHER THAN THE THE TRUE VALUE.WHILE LOOKING THROUGH MY DATA BASE I SOMETIMES SAW SUCH COMPANIES WITH GOOD BALANCE SHEET AND  FINANCIAL RESULTS,HIGH ROE, AND THEN I PONDER WHY THIS PARTICULAR STOCK IS NOT MOVING OR IS AT LOW PE THAN ITS PEERS.AM I MISSING SOMETHING WHICH I DONT KNOW.THEN THE PERCENTAGE OF PLEDGED  PROMOTERS STAKE SHOOK MY HEAD RIGOURSELY.

WHAT IS A SHARE PLEDGING .? WHY DO COMPANIES PLEDGE IT? WHY MR MARKET DOES NOT WELCOME PLEDGING OF SHARES

SHARE PLEDGING IS A DANGEROUS FINANCIAL TOOL OF RAISING CAPITAL AND FUNDS BY THE PROMOTERS IN ORDER TO MEET COMPANY FINANCIAL NEEDS OR BUISNESSNEEDS,,AQUISITIONS.THIS METHOD SEEMS TO BE EASY AND CONVINIENT TO THE PROMOTERS AS WELL AS TO THE LENDERS . TECHNICALLY IT IS THE LAST METHOD AVAILABLE OR YOU CAN SAY THE EASIEST ONE TO RAISE FUNDS BY PROMOTERS.LENDERS  GET TWICE OR THRICE TIMES THE VALUE OF THE SHARES AND THE LIBERTY TO SELL THESE SHARES IN THE OPEN MARKET IN CASE STOCKS FELLS DOWN.

             FEW YEARS AGO WHEN THE INTEREST RATES WERE AT HIGH LEVELS AND THE INDIAN ECONOMY WAS STRUGGLING AND IN ORDER TO MEET COMPANY CAPITAL NEEDS PROMOTERS PLEDGE THEIR SHARES TO GET LOAN HALF OR ONE THIRD OF AMOUNT OF PLEDGE SHARES.TILL HERE THERE SEEMS NO HARM  . BUT THE ROSES ARE NOT SO RED. THERE IS NOT AT ALL CONCERN IF EVERYTHING IS GOOD AND MARKET IS GOING UP. WHEN EVER MARKET GOES TO A CORRECTIVE PHASE THE VALUE OF STOCK GOES DOWN AND IN ORDER TO MEET THE COLLATERAL THE PROMOTERS HAS TO PLEDGE MORE SHARES TO THE  LENDER OTHERWISE LENDER WILL SELL IT.FOR EXAMPLE- SUPPOSE A COMAPANY 'A' PLEDGED 1 LAKH SHARES OF 100 RS  TO MEET THE COLLATERAL OF 1 CRORE RS AND IF STOCK GOES IN CORRECTIVE PHASE ,OR THE COMPANY PRODUCED BAD RESULTS AND THE PRICE GOES TO RS 80 THEN THE PROMOTERS HAS TO PLEDGE 125000 SHARES @ 80 RS TO MEET THE COLLATERAL OF 1 CR.(125000*80=1CR).AND IF THE PROMOTERS DO NOT PLEDGE MORE SHARES TEN THE LENDER WILL SELL IT IN OPEN MARKET CAUSING BIG  CRASH IN THE STOCK PRICE AND A SUDDEN  MASSIVE EROSION OF SHAREHOLDER WEALTH AND CONFIDENCE. THE SCENARIO IS EVEN WORSE IN CASE OF HIGH BETA COMPANIES.THIS CAN ALSO MAKE PROMOTERS LOOSING  CONTROL OVER THE COMPANY.EXAMPLE- SATYAM COMPUTERS.

                           SO WE CAN WITHNESS A CRASH IN PRICE UPTO 80% IN SOME STOCKS.SOME PEOPLE HAS MISCONCEPTION  THAT IT IS A TEMPORARY PHASE AND  THE STOCK WILL REBOUND AS THE INTRINSIC VALUE OF THE STOCK REMAINS SAME AND FUNDAMENTALLY IT IS GOOD STOCK. TO MY OPINION A FUNDAMENTALLY GOOD BUISNESS DO NOT REQUIRE SUCH TYPE OF METHODS TO RAISE  FUNDS. A GOOD BUISNESS GENERATES CAPITAL ITS OWN.AFTER A BIG CRASH PEOPLE DO NOT TRUST IN SUCH COMPANIES MOREOVER THEY  DO NOT KNOW HOW MUCH PLEDGED PORPORTION IS STILL WITH LENDER.TECHNICALLY THE STOCK CAN MOVE UP  IN A SHORT TERM  AFTER 80% CRASH BUT TO GET CMP EQUAL TO  INTRINSIC VALUE   THE CLOCK HAS TO MOVE FOR YEARS .THE SMART INVESTOR KNOWS WHERE TO INVEST AND  ACE INVESTOR KNOWS  WHERE NOT TO INVEST. IN MY VIEW ONE SHOULD KEEP A LONG DISTANCE FROM THE COMPANIES .

CHEENI KUM-SUGAR STOCKS

                      Disclaimer: This Blog owner & creator is not a research analyst and expressing opinion only as an investor in Indian equities. He is not responsible for any loss arising out of any information, post or opinion appearing on this blog. Investors are advised to consult financial consultant before acting on any such information. Author of this blog not providing any paid service to anyone. For any further queries please contact rajatmukhija@gmail.com     

                   CHEENI KUM- SUGAR STOCKS

SUGAR SECTOR IS ONE OF THE CYCLICAL SECTOR THAT EVERYBODY WANTS TO BET UPON AND  WHY NOT AS TIMELY ENTRY INTO THESE STOCKS CAN MAKE WHOPPING 5X TO 10X RETURNS.DURING THE BAD PHASE OF THE CYCLE EVERBODY WANTS TO IGNORE IT BUT AS SOON AS THE TREND CHANGES EVERYBODY WANT TO MAKE A HAY WHILE THE SUN SHINES.IF WE CHECK LAST 25 YEARS DATA THE SUGAR STOCKS(PRICES)WERE IN PEAK IN 1994 THEN IN 2006 KEEPING THIS CYCLICAL TREND IN MIND THE NEXT PEAK SEEMS TO BE AT 2017-2018.MEANS IN COMING 2 YEARS ONE CAN EARN 5X TO 10X RETURNS WITH  LITTLE WISDOM AND INTELLIGENCE.

THE BASIC HINDRANCE  --  

1)     THE FIRST PROBLEM WITH THE  SUGAR INDUSTRY IS THE DEMAND AND SUPPLY RATIO.NOW A DAYS THE PRODUCTION OF SUGAR ARE AT ITS TOP IN LAST 10 YEARS.IN THE YEAR 2014-2015 AS NEARLY 290 MILLION TONES OF SUGAR IS PRODUCED IN INDIA AND NEARLY 250 MILLION TONNES IS BEING CONSUMED MOREOVER IMPORTS ARE ALSO ALLOWED WHICH FETCHES  MORE SUGAR IN THE COUNTRY.ALSO THERE WERE EXPORT RESTRICTION EARLIER (BAN ON EXPORT IS LIFTED FROM 1 OCT 2015 AS PER WHICH ALL SUGAR COMPANIES COLLECTIVELY HAS TO EXPORT 10 MILLION TONNES OF SUGAR).

2) INPUT COST-NOW THE QUESTION ARISES THAT IF THE PRODUCTION IS HIGH THEN THE  INPUT MATERIAL  "SUGAR CANE" MUST BE IN ABUNDANCE. WHICH IS CORRECT AND IF IT IS IN ABUDANCE THE PRICE OF SUGARCANE MUST BE AT LOWEST LEVELS.WHICH IS INCORRECT. AS FOR THE PRICE OF SUGARCANE THERE IS A MSP(MINIMUM SUPPORT PRICE) SET BY GOVERNMENT BELOW WHICH COMPANIES CANNOT PURCHASE SUGARCANE .SO THE INPUT COST IS NOT IN HANDS OF COMPANIES

3) REVENUE- IF COMPANIES CANNOT CONTROL INPUT OR THEIR INPUT COST IS HIGH THEY CAN RAISE THEIR SUGAR PRICES IN ORDER TO EARN PROFIT. ANSWER IS AGAIN BIG  NO AS THE COMPANIES CANNOT RAISE SUGAR PRICE AS ITS PRICE IS AGAIN CONTROL BY GOVERMENT.

                                SO IT MEANS SUGAR COMPANIES INPUT  COST IS HIGH AND  REVENUE IS LOW. EVEN LOWER THAN THE INPUT COST TO THE COMPANY. AT PRESENT THE COST OF PER KG SUGAR TO THE COMPANIES IS AT 36 TRS KG AND THE SUGAR PRICE IN MARKET IS AROUND 31 RS. SO THE COMPANIES ARE AT HUGE LOSSES AND CANNOT PAY TO  FARMERS . THE CURRENT DEBT WITH ALL COMPANIES STANDS AT  RS 24000 CR . TO CLEAR THIS DEBT AND  TO GIVE RELIEF TO FARMERS AND SUGAR MILLS GOVERMENT IS GIVING INTREST FREE LOANS TO MILLS .BUT THAT GIVE BENEFIT TO LARGE PLAYERS ONLY. SMALL MILLS ARE SHUTTING DOWN OR ON  THE VERGE. BUT STILL PRODUCTION IS NOT HAMPERRING NOW AGAIN QUESTION ARISES THAT IF FARMERS ARE NOT PAID THEN WHY THEY ARE PRODUCING SUGARCANE .THEY CAN PRODUCE SOME THING ELSE AND WHY COMPANIES ARE PROCESSING SUGARCANE IN LOSS. THEY CAN PROCESS LESS SUGARCANE AS THEY HAVE LOSS PER QUINTAL. SO LESS PROCESSING LEADS TO LESS LOSS.THE ANSWERS ARE THAT  TO GROW SUGARCANE THE ONLY THING REQUIRED IS LAND.FARMERS  DO NOT REQUIRE MUCH INVESTMENT TO GROW IT ,ITS LIKE A FREE BUISNESS. SECONDLY COMPANIES CANNOT REFUSE TO PROCESS SUGARCANE AS THEY HAVE BEEN ALLOTTED PARTICULAR AREA  AND THEY MANDATORY HAVE TO PROCESS IT EVEN AT LOSS.

4)EXPORT THE EXCESSIVE SUGAR- TILL 30-9-2015 COMPANIES  CANNOT EXPORT SUGAR ALSO . BUT NOW COLLECTIVELY THEY CAN EXPORT 40 LAKH TONNES OF SUGAR IN AYEAR.AND IMPORT  OF SUGAR IS ALSO ADDING TROUBLE TO THEIR BUISNESS.

  SO IN VIEW OF THE RECOVERY OF THIS CYCLE FEW THINGS  SHOULD BE WATCHED-

1) LOW MSP OF SUGAR CANE- NOT LIKELY TO BE IN NEAR FUTURE

2) INCREASE  OF SUGAR PRICES FROM CURRENTLY APPROX 31 RS TO 45 RS( PEAK IN 2006). SO ANYTHING ABOVE 45 WILL BE WELCOMED BY THE MARKET.

3) EXPORTING OF SUGAR(WHICH IS PARTIALLY ALLOWED WITH CONDITION) AND RESTRICTION OF IMPORT.

4) KEEP A WATCH THAT WHEN  PROMOTERS INCREASE THEIR STAKE IN COMPANY AS THEY ARE BEST JUDGE FOR THEIR COMPANIES .

                                FEW COMPANIES THAT CAN BE TURNAROUND ARE RENUKA,BAJAJ HINDUSTAN,DCM INDUSTRIES LTD,TRIVENI INDUSTRIES,DHAMPUR ETC.

DISCLAIMER- NOT INVESTED IN ANY OF STOCKS .PLZ TAKE ADVICE FROM RESEARCH ANALYST BEFORE INVESTING.

GST-           THE MUCH AWAITED SO CALLED MAGICAL                      FRAMEWORK

 WHAT IS GST-           GST IS GOODS SERVICE TAX AS PER ABBREVATION AND IS ONE OF THE MOST AWAITED FRAMEWORK AND TAX REFORMS GST IS A  SINGLETAX APPLIED IN THE SALES INVOICE AND IT REDUCED THE NO OF INDIRECT TAX  .   EVERYBODY IS LOOKING IN A WAY THAT AS SOON AS IT IS IMPLEMENTED   THE INDIAN ECONOMY WILL REFORM BY LEAPS AND BOUND . IS IT REALLY SO. 

WHY GST AND HOW IT IS DIFFERENT FROM VAT -

TILL NOW THERE ARE MULTIPLE TAXES LIKE CENTRAL SALES TAX,STATE TAX,ENTRY TAX,LICENSE FEES,TURNOVER TAX AND THAT ALL WILL VANISH AND WILL COME UNDER GST. SO BUISNESS MAN WILL GET A CLEAR VIEW OF TAX TO BE PAID INSTEAD OF THE HIDDEN TAXES.IT WILL PROCEDURES MORE SIMPLE AND TRANSPARENT.IT WILL BE A  SOURCE OF  REVENUE FOR GOVERMENT APPART FROM INCOME TAX AND PERTOLEUM TAX. EARLIER THERE WERE VAT IN STATE . DIFFERENT STATES HAS DIFFERENT VAT REATES AND REGULATIONS  AND STATES CUT THESE RATES TO PULL INVESTORS WHICH IN TERMS GIVE LOSS TO THE STATE AND CENTRE.IT WILL GIVE A UNIFORM TAX TO ALL  THE SECTORS AND ALL THE REGIONS. THE TAX OLLECTED WILL BE DISTRIBUTED BETWEEN STATE AND THE  CENTRE WITH A ACCEPTABLE METHOD.STILL NOW THERE IS NO ACCEPTABLE FRAMEWORK READY TO DISTRIBUTE TAX BETWEEN CENTRE AND STATE.

WILL GST REDUCE INFLATION AND PROGRESS DEVELOPMENT-

DOES BY IMPLEMENTING GST A CONSUMER GETS GOODS AT CHEAPER RATE? AS THE NO OF TAX WILL BE OMMITTED BUT THE ANSWER OF THIS QUESTION IS NOT CERTAIN.IN INDIA THE RATE OF ALL DIRECT AND INDIRECT TAXES ARE AT 18% AND IN ORDER TO  MAINTAIN THE  CURRENT TAX REVENUE LEVEL IT SHOULD BE AT 18% BUT AT THIS RATE GOVERMENT WILL NOT BE ABLE TO DO TREMENDOUS DEVELOPMENT FOR WHICH ALL IS WAITING.IT IS BEING PREDICTED THAT THE TAX RATE WILL BE AT 24% IN ORDER TO BOOST DEVELOPMENT. BUT AT THIS STAGE ALL THE THINGS WILL GO VERY HIGH. THE SERVICE TAX WILL ALMOST DOUBLE FROM HERE. THE ARTICLES WILL BECOME COSTLY AND PURCHASING POWEWR OF PEOPLE WILL COME  DOWN THUS DEMAND WILL BE LESS AND THAT ALSO HAMPERS ECONOMY REVIVAL. SO IT HAS TO BE IMPLMENTED IN A SMARTER WAY AND IT IS A LONG STRATEGY TO DO ECONOMIC REVIVAL AND WILL NOT HAVE IMPACT IN SHORT TERM . HERE ARE THE SOME SECTORS ON WHICH GST WILL BE HAVING  IMPACT.

SERVICE SECTOR-                    BETTER CREDIT ACROSS GOODS AND SERVICE BUT THE                                                        THINGS WILL GO COSTLIER.

REAL ESTATE-                           SIMPLIFIES LEVY AND VALUATION,STAMP DUTY MAY                                                             CONTINUE   TO APPLY.

BANKING,FINANCIAL 

SERVICES AND INSURANCE-   COST OF  BANKING WILL INCREASE ,INTERST ON                                                                      LOANS EXPECTED TO BE TAXED UNDER GST.

ENTERTAINMENT AND 

HOTEL INDUSTRY-                     ELIMINATES MULTIPLE TAXES,SIMPLIFY COMPOSITE                                                              TRANSATIONS,

IT AND TELECOM-                       END TO CLASSIFICATION DISPUTES ON                                                                                         SOFTWARES,SIM CARDS,FRANCHISEE FEES.

MANUFACTURING SECTOR-     ENTRY TAX IN STATE WILL BE ELIMINATED.

                                                         INCREASE COST OF PRECOURMENT,NEGATIVE                                                                           WORKING CAPITAL IMPACT.

VIDHI DYESTUFFS ----ADDING COLOURS TO YOUR PORTFOLIO.

  Disclaimer: This Blog owner & creator is not a research analyst and expressing opinion only as an investor in Indian equities. He is not responsible for any loss arising out of any information, post or opinion appearing on this blog. Investors are advised to consult financial consultant before acting on any such information. Author of this blog not providing any paid service to anyone. For any further queries please contact rajatmukhija@gmail.com 

VIDHI DYESTUFFS MANUFACTURING LIMITED.
MARKET CAP-312 CR
CMP- 62
BOOK VALUE-9.94
STOCK PE-22
FACE VALUE -1 RS
DIVIDEND YIELD-0.64%

VIDHI DYESTUFFS MANUFACTURING LIMITED BELONGS TO THE SPECTIALITY CHEMICAL SECTOR AND IS A GLOBALLY LARGE PLAYER OF SYNTHETIC FOOD GRADE COLOURS,DYES AND PIGMENTS.INCOROPRATED IN JANUARY 94 AS ' VIDHI DYESTUFF MANUFACTURING PVT LIMITED ,IT IS RENAMED AS VIDHI DYESTUFF MANUFACTURING LIMITED AND BECOME PUBLIC LIMITED COMAPNY IN MARCH 95.IT IS A ISO 9001: 2000 CO,ISO 22000:2005 COMAPANY AND HAS "HACCP",KOSHER AND HALAL CERTIFICATION.THE MANUFACTURING UNITS HAS BEEN AUDITED BY "USA FDA".THE COMPANY HAS CLIENTS IN ALL OVER THE WORLD IN MORE THAN 85 COUNTRIES AND HAS STRONG RELATIONS WITH THE VARIOUS LEADERS OF PHARMACEUTICAL,FEEDS,DAIRY  INDUSTRIES BUILT OVER TWO DECADES.

SECTOR OVERVIEW-

WITH THE APPROVAL OF 100% IN CHEMICAL SECTOR AND REDUCED EXCISEE DUTY FROM 14% TO 10%  ARE ADVANTAGES AND WEAK RUPEE HELPS TO INCREASE OPM AS 95% OF THE REVENUE ARE FROM EXPORTS.

HIGHLIGHTS

1) IT IS A GLOBALLY LARGE PLAYER AND LEADING MANUFACTURER OF SYNTHETIC FOOD GRADE COLOURS, DYES AND PIGMENTS WITH A CURRENT CAPACITY OF 2500 MTPA. THE COMPANY IS EXPECTED TO INCREASE ITS CAPACITY TO 3500MTPA IN A  YEAR AND TO 8000 MTPA BY 2020.

2) THE COMPANY PLANS TO BE LISTED IN NSE WHICH WILL INCREASE ITS LIQUIDITY

  AND ALSO  BUILT CONFIDENCE  IN SHAREHOLDERS.

3) HEALTHY REVENUE GROWTH FROM 2008(30.69 CRORES) TO 202 CRORES IN 2015. ESPECIALLY IT REGISTERED 47% GROWTH IN Q1FY16.LAST FIVE YEARS COMPOUNDED SALES GROWTH IS AT 30%.

4) ROBUST PAT GROWTH WITH 0.82 CRORES IN 2008 TO 13.78 CRORES IN 2015. LAST FIVE YEARS COMPOUNDED PAT GROWTH  IS AT 29%NET PROFIT SHOWS 56% JUMP IN Q1FY16 AS COMPARED TO LAST QUARTER.

5) OPM INCREADED FROM8.40 % IN MARCH 08 TO 14.93% TTM AND COMPANY IS EXPECTED TO INCREASE IT TO MORE THAN 20% TILL 2020.

6) LAST FIVE YEARS ROE IS AT 15%. 

7)  THE DEBT TO EQUITY RATIO IS DECRESING AND THE INTERST COVERAGE RATIO IS ALSO QUITE IMPRESSIVE.

8) COMPANY IS MAKING PROFITS AND IS PAYING HELTHY CORPORATE TAX.

9)  THE COMPANY IS PAYING DIVIDEND AT 22%

10) THE COMPANY IS EXPECTED TO GROW AT  24% CAGR IN REVENUE GROWTH AND 40% PAT IN THE COMING YEARS.

	Mar 09	Mar 10	Mar 11	Mar 12	Mar 13	Mar 14	TTM
Sales	26.25	24.25	30.36	30.69	39.29	71.14	98.05
Expenses	24.56	22.81	27.66	28.11	35.35	65.74	90.98
Operating Profit	1.69	1.44	2.70	2.58	3.94	5.40	7.07
OPM	6.44	5.94	8.89	8.41	10.03	7.59	7.21
Other Income	2.20	0.94	0.41	0.44	0.37	1.23	0.78
Interest	0.26	0.36	0.59	0.66	0.84	1.16	2.26
Depreciation	0.77	0.86	0.87	0.89	0.96	1.00	0.92
Profit before tax	2.86	1.40	1.65	1.50	2.51	4.47	6.03
Tax	0.75	0.26	0.63	0.68	0.89	1.62	2.35
Net Profit	2.11	1.14	1.02	0.82	1.62	2.85	3.68
EPS (unadj)	4.02	0.23	0.20	0.16	0.32	0.57	0.74
Dividend Payout	35.55	0.00	0.00	0.00	0.00	0.00	0.00

SUMMARY

                         SO WITH ALL POSITIVES FOR THIS SECTOR AND INCREASE IN CAPACITY OF ONE OF LARGEST MANUFACTURER. AND REDUCTION IN THE DEBT IN COMING YEARS, THE REVENUE GROWTH , PAT AND EPS  IS  EXPECTED TO INCREASE. IN COMING YEARS.
Disclosure: I am not holding any stocks of this company. Please do your own due diligence and do research before buying the stock.