Shareholder Awareness Program

Welcome to our blog, our objective is to bring positive change in quality of corporate governance in Indian companies by starting shareholder activism in India!

We will be also sharing experiences on AGM, stock reports and management quality reports.

(click here to download presentation on Shareholder activism)

Zuari global, a gamble as per its name ?


Zuari global, a gamble as per its name?

Zuari global, a gamble as per its name?  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 5.448 crores and 11.183 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 number of shares out of curiosity to know what happens, will the value unlocking happen or not)

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)


Previous
Next Post »