Selan exploration, summit
securities and 20 microns AGM experience
Article published as on Monday, 28th September,
2020 at 7:00 a.m.
These are all small cap stocks also the AGM were
very quick so instead of writing separate article I am clubbing all these into
one.
Selan exploration, 23rd sept 9:30 a.m.
Summit securities, 25th sept 11:00 a.m.
20 microns, 25th sept 3:00 p.m.
Let’s start with
Selan exploration
After the formalities in the beginning and the
chairman speech.
The chairman Rohit Kapoor addressed all the
shareholders queries.
There were around 8 to 9 speaker shareholders
including myself.
Clarifications and answers from management.
Question) in your May 2019 presentation why is the revenue
and profits and cash flows declining from 2021 onwards?
Answer) we expect 30% royalty and cess from 2021 onwards
right now also in karjisan field which is mainly gas producing the realisation
is 70% right now.
Also the cash flows we projected we might do capex,
but now we are not doing any capex this year so accordingly those things needs
to be updated in the presentation. Also for 2021/22 as far as capex is
concerned sorry I could not get clarity on that, as it will depend on various
factors.
Question) is there any non-operating asset left to be
written off?
Answer) we have written off all the non-operating oil
fields and there is no non-operating asset on the balance sheet.
Question) what is on average the cost of production?
Answer) cost of production is in the range of 10 to 15
dollars per barrel of oil.
I asked some
of my queries
Question) as per the agreement with IOC we have, we provide
crude at 3% discount and in return get guaranteed offtake of crude so why was
the revenues and profit lower in Q4FY20 & Q1 FY21?
Answer) due to lockdown we had to take care with our on
field workers, and also the prices of crude were depressed in Q1 leading to
lower realisations.
(My analysis: in Q4 the profits were lower due to
impairment of asset unto 9 crores and in Q1 I remember that crude future traded
negative on 21st April so it was a tough time for oil exploration
industry and I was satisfied with the answer given)
Question) at times market cap of selan is below the cash
equivalents it hold, being a prudent management you have done buyback last
year, can we expect buyback or some kind of shareholder reward this year in
form of dividends or free of cost debentures
(Britannia and dr.Reddy’s lab issued such
innovative instrument to reward shareholders)
Answer) we are constantly giving 50% (5 rupees) as
dividend and will continue doing so, personally I after analysing buybacks of many
company’s I don’t feel it helps in lifting up prices, whereas we did buyback
from open market.
(My analysis: few shareholder also raised question
on low share prices and gentleman Mr. Rohit Kapoor agreed to that point and
said that the shares are undervalued and we will take measures for improving
shareholder returns, so this is good, at least management acknowledges the
problem of lower share price and has assured shareholder of better returns
going forward….)
Question) can you please provide what after 2030/2033 when
the lease period of oilfields expire?
Answer) it’s very difficult what will happen after 2030,
our board constantly discusses how will the next year be, what should we do and
all.
Another important
points:
In the beginning of chairman speech Mr. Rohit
Kapoor said that
Where the oil is found there will be more oil, but
the difficult part is to first find the oil.
With the cash they are planning to acquire overseas
assets, which seems to be cheap, in India they are not bidding for the
exploration blocks is because of following reasons:
1)
The bidders
need not have any experience in the exploration.
2)
Due to this
inexperience they often bid at wrong price and once they enter into the
contract with the government it’s not possible to change the term, and sadly
they find it the difficult way.
Also the billing cycle was explained, how the invoice
raised with IOC are in USD and when the payment is made after 3 months its made
in Indian rupees as per the exchange rate on the date of raising invoice.
(This seemed interesting as due to this arrangement
they need not do much forex hedging as well.)
Final
comments:
Selan exploration has huge cash reserves and
management is constantly exploring to acquire assets (mostly overseas) with
this cash.
Management have admitted that share is undervalued
and will work for shareholder returns.
With the green revolution, solar and renewable
energy trend, investors are maybe avoiding this crude producing company, also
the limited visibility of business up to next 10 years is concern for
investors.
In My personal opinion from these levels even if it
does not rise, the scope for it falling is limited due to availability of huge
cash balance, if it falls beyond reasonable valuations management can come and
announce buyback to support prices… hence I am positive on this stock at
current levels.
Overall I was satisfied with the answers given by
the management.
My views on:
Company: positive
Management: positive
Scrip code : 530075 market
cap : 160.74 crores
Scrip name : Selan price : 105.75 rupees (25/9/20)
(You can also read
my article on Selan exploration and how it had negative enterprise value which made it very attractive in valuations)
Summit
securities
My
questions:
1)
Stel
holdings and summit securities are both holding companies of RPG group
companies so is there a possibility of merger going ahead? Can we expect merger
between the two?
2)
My main
query is related to huge discount company is trading at 85% to 90% of value of
its holdings.
Main objective of any company is to maximise
shareholder value, we are generating 25 crores and 28 crores of PAT and
operating profit on standalone basis and 72 and 79 crores of PAT and operating
profit on consolidated basis, why don’t we use this cash to reward shareholders
through dividends or buybacks?
Answers given:
Chairman Mr. Ramesh Chandak defended saying in 10
years share price doubled and none of the holding companies trade at intrinsic
value and wherever we find opportunities to invest, we invest that’s the reason
cash is so low at the end of year in our books.
And regarding merger it, they said they may think
over it and discuss with the independent board of stel holding.
It somehow gave an impression that yes this is a possibility.
I was the single shareholder chairman thanked me
that I took the effort to ask question and the company secretary came and said
the meeting concludes
It was
concluded at 11:13 am. I laughed
and laughed, only a 13 minute of AGM? But in reality it’s a sad thing that no
other shareholder speaker were present, and they had to wind up so early.
I wonder did they even had the required quorum or
just skipped that part of compliance…
(I had a similar experience in the AGM of
Rajapalayam mills ltd where I was the single speaker shareholder as well, both
these companies are holding companies, read this article
to know more on holding companies)
Final comments:
I had mixed feeling for the company, I was happy
that my questions were answered by the best of their ability.
And I was not satisfied because of statements such
as ‘we doubled share price in 10 years’ and ‘no holding company trades at
intrinsic value’
I agree that they don’t trade at fair value but
they don’t trade normally at 85% to 90% discount either, which is extreme.
Management is professional and company has
independent board but the promoter themselves own 75% share, which means
indirectly all the decision are in the hand of promoters, even if board
proposes resolution for dividend the promoters can easily vote against it and
block dividend payment.
I had heard that RPG group is not so good in
sharing wealth with minority shareholders, and with my experience I can confirm
it, we can only be hopeful for the future.
Purely looking it from the discount perspective it’s
an attractive stock with very little further downside given the huge discount.
My views on
the
Company: positive, based on the 89.05 % discount (25/9/20)
Management: currently not
investor friendly!
Scrip name: SUMMITSEC share
price: 384.75 rupees (25/9/20)
Scrip
code: 533306 market cap: 419.25 crores
20 microns
This company
is into mining and processing of minerals. It produces micronized minerals
(hence the name 20 microns) along with it, it has entered into construction
material segment and herbals products as well.
(20 microns on valupickr
forum for more information)
The meeting started at 3:00 p.m. and all
formalities such as reading out resolutions, reading comments from
independent auditors report, confirming quorum and then chairman speech was
done.
Now came speakers turn to ask questions only 3
speakers were there.
First 2
speaker asked following questions
What is impact of covid on business?
Why operating margins were down?
Why press release was not being published on
exchanges along with results?
What is the market share of 20 microns in the
industry and what is revenue share?
What is finance cost?
What are the plans for IPO of 20 microns Nano?
Answer:
Covid has impacted business and our revenues have definitely
been affected from this
Operating margins were down due to transferring
high margin business in 20 microns Nano to streamline the process.
Due to covid this year we are not attaching press
release, next financial year onwards we shall restart the practice of
publishing press releases as well.
20 microns is the leader in the market of micronized
minerals
(Also revenue breakup from each segment was given)
The finance cost currently stand at 12%, we are in
talks with lenders to bring it below 10%.
We have no plans of IPO for 20 microns Nano due to
bad market conditions, we may consider it next year.
Now afterwards
I asked by questions
(Which were already emailed to them as per their
request.)
1) What is the finance cost? They already had
answered that as 12%
2) What is this note number 40.2(b) (page no.98) what
is this 1 crore lenders are asking in exchange of permission to pay dividends?
Answer) this is the Adhoc recompensation amount we had to
pay as 1 crore to prove to SBI (lender) that we have the intention to pay back
8 crores of amount.
(I did not understood it the first time and even
after clarification why you would pay 1 crore rupees to pay 2 crores as
dividend, why not clear 8 crores of loan in the first place? Also as a layman I
would wonder what does ‘adhoc recompensation amount’
means... Thankfully we can google it...but it’s a red flag for me.)
3) 20 microns has launched very innovative and
disruptive products such as micronsil 30c, I had seen it on YouTube, and so
have you patented your product?
Answer) we have not patented that product, also due to IP
rules in India it was not appealing for us to do so, but now the rules are
better. also in future we have some innovative products which could be
patented.
(They made high claims in their YouTube video about
the ability of product but no patent? (Red flag) so
anyone else can also manufacture and produce this product going forward.)
4) 38% of revenue come from only 2
clients/customers how do you plan to diversify your customer base?
(No answer was given)
5) Cash flow and valuation:
We have 38 crores of operating profit, but if we
deduct 13 crores of investing cash flow, and 20 crores of finance expense only
5 crores of free cash flow remains.
This is a big concern as finance cost is very huge
(it makes 20% of current market cap)
How do we plan to improve these figures?
(No answer was given)
6) What is the business like in herbal division as i
see a lot of potential in it (I asked a general view on it?)
Answer) we have been launching products it may take some
time to pick up as currently we are only doing online sales as online is the
future.
7) I had written in email about suggestion on
improving the website further.
Answer) we had developed website in-house using 2 to 3
people, but now we are hiring professionals to do this job and in coming time
you will see the improved version of website.
I was waiting for answer on cash flows, but then I
was muted and company secretary of 20 microns Anuja muley started the
formalites to end the AGM.
My views: important question on cash flow was
ignored and not answered, this is how management ignores tough question,
I felt bad on not getting answer even when they had
my email before hand to answer me appropriately, then what was the use of
sending email? Huh?
I was not impressed by the management at the AGM,
hence my views could be biased against the company and I wish there would be
better communication so I could get clarification and answers to my question.
Conclusion:
The company has great products with great
potential, but due to my experience in the AGM, I am not so positive about the
company, let the things improve:
In terms of
reduction of debt, more free cash flows, more patents being filled and more
sales in herbal division
My views on
the:
Company: neutral
Management: neutral
Meeting ended around 3:40 p.m.
Scrip name: 20MICRONS scrip
price: 28.10 rupees (25/9/20)
Scrip code: 533022 market
cap: 99.16 crores
The end
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