Zuari global, a gamble as per its
name?
Article published as on Monday, 24th
August, 2020 at 7:00 a.m.
A brief background of the company, it’s from the K.K.
Birla group, now re-branded as Adventz group and is headed by Saroj Kumar Poddar.
(For the research, Help of FY19 annual report
has been taken, latest FY20 report is also available)
In my previous article I wrote about holding
companies, and this company seemed interesting to me.
From the title one can guess, I am not pleased with
the company.
Let’s get into what’s positive for the company and
how at first it seemed a mouth-watering investment option. At first I Felt like
Zuari global is sure to be a multibagger stock
Let’s get
into what its investments are and how much value it is.
Zuari Agro Chemicals Ltd
19.99%
Chambal Fertilisers
& Chemicals Limited 14.20%
Texmaco Infrastructure
& Holdings Ltd 20.75%
Texmaco Rail and
Engineering Ltd 1.79%
So the value of investment 1095.94 crores and current market cap 164.97 crores amounts a discount of 84.94% as on (22/8/20)
Apart from
it a look into its accounts and balance sheet reveals more...
The
subsidiaries it has are
Zuari infraworld India ltd
Simon India ltd
Indian furniture products ltd (IFPL)
Zuari investment ltd
Zuari sugar and power ltd
Zuari management services ltd
Apart from this it has other Joint ventures known
as
Zuari Indian oiltanking pvt ltd
Forte furniture products India pvt ltd (FFPIPL)
Now coming
its assets
It has land worth 258 crores (as on 31/3/19, page no.46 under the inventories
(note no.7))
As furniture segment looks promising to me (as no
major listed players are present and the trend of shift in market share from
unorganised to organised)
I was excited and drawn towards it .It has 2
companies (IFPL and FFPIPL) but both are loss
making.
Apart from this it’s another subsidiary Zuari
finserv is into share, broking and houses subsidiaries which are into insurance
and commodity broking.
Zuari finserv consolidated PAT for FY18 & FY19 Was 0.5448 crores and 1.1183 crores respectively.
So the above factors when viewed together makes
this company a super duper buy...
But wait a minute...
‘daal mai kuch kala hai'
Why does market not value such great investments? Is
there any corporate governance issue...?
What about promoters?
I haven’t yet studied them...
Let’s get into the promoter background and other
facts in detailed which reveal governance issues of the company
Auditors report:
qualified opinion
This is a red flag in any company and one needs to
dive deeper as auditors have shown concern over some aspects. This could serve
as an early warning sign. (Page number 5 and 106, FY19 annual report)
Balance
sheet
Loans taken (reflected in non-current and current liabilities)
Are at higher rates even secured loan taken by pledging the land has interest
rate of 11.85
P.A. (bank name not specified)
(Loans taken total amount: 175.81 crores)
And they are giving these loans in turn to their
group and associate companies.
(Loan given total amount: 199.1992 crores)
Both the amount are more than the current market
cap, hence this is material information one should know.
(I have explained this practice with the example of
BBTC, how it borrows and lends money through inter corporate deposits - ICD to
related parties.)
Now coming
to the point:
Promoter background:
(This is qualitative factor which is reflected into
the market price.
Being a qualitative factor, this is a subjective
study and your opinion may differ from mine.)
So these
companies belonged to K.K. Birla group.
I read somewhere that K.K. Birla group is known for
not sharing wealth with shareholders. (Source)
After the death of K.K. Birla the assets went to their
daughters.
Nandini nopany
Jyotsna Poddar &
Shobhana Bharati
Now this name Shobhana seemed familiar and I remembered
these people from HT media. (Article
link here)
Chambal fertilizers is managed by husband of shobna
bharati (shyam s. Bharati) and husband of Jyotsna Poddar ( Saroj Kumar Poddar)
The Zuari group is managed Saroj Kumar Poddar.
He rebranded the group to Avendtz group.
Last year Zuari
agro (one of its associate companies)
It was rated 'D' meaning 'default'
And recently they proposed plans to transfer their
goa plant to some other company which was opposed by other shareholders. (Link
here)
Looking at condition of Zuari agro, a good company now
rated as 'D' this raises serious questions over management’s intention and
capabilities.
The promoter group are partner with Hettich India
which is also a furniture related company and is profitable.
Promoters have kept profit making companies with
themselves and these two (IFPL & FFPIPL) both are currently loss making
with public listed companies.
With all the
above mentioned reasons I feel Zuari global is trading at steep discount due to
the "bad will" of current management.
Conclusion
The reason why market is not acknowledging such
great assets and its value is because it feels that this management won’t be
rewarding minority shareholder.
So the corporate governance is the issue.
Bullish on the great assets of the company
Bearish on the management.
(In my
personal opinion the K.K. Birla group companies have been deteriorating in
corporate governance matters)
I am listing out related group companies as
investor needs to be aware and alert before investing in them due to several
red flags stated above.
Zuari agro chemicals ltd (company has defaulted on debt payments)
Chambal fertilizers & chemicals ltd.
Texmaco Infrastructure & Holdings Ltd
Texmaco Rail and Engineering Ltd
HT media
Sutlej textiles
Magadh sugar
Mangalore chemical and fertilizers.
Sil investment (this is another holding company from kk birla group, similar to Zuari
global, under control of Nandini Nopany)
Investing in
Zuari global could turn out to be gamble just like its name 'Zuari' hence
investors should avoid investing heavily into such companies
Name:
ZUARIGLOB price:
55.65 (21/8/20)
Code: 500780 market cap: 163.84 crores
(Disclosure: I may buy a very few number of shares, just out
of curiosity to know what happens, will the value unlocking happen or not)
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