2020 AGM updates on selan exploration, 20 microns & summit securities ~ Shareholder Awareness Program

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2020 AGM updates on selan exploration, 20 microns & summit securities





Selan exploration, summit securities and 20 microns AGM experience




2020, annual general meeting updates for selan exploration, summit securities and 20 microns.





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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