GEE Ltd: Lowest Valuation in Welding Industry (with Real Estate Potential) 

GEE Ltd: Rationale for Recommendation:

1.  Stock trading at  PERatio of 12.70 (FY16Eeps) as against PERatio of 30+ of Esab India

2. High promoter stake at 74.70%

3. High growth potential

4. Gee Ltd has 3 Acres of Vacant plot at prime location in Thane. Market price of this plot is Rs 100+ crores (which is 50% more than current market cap of GEE) 

5. GEE is planning to enter into a JV with some leading/branded developer for constructing IT Park with carpet area of nearly 5 lac s f on the plot. This project can fetch to GEE more than Rs 200 crores PBT (over a period of 5-7 years) as GEE's revenue share from envisioned JV (presuming that entire space is sold)

6. If IT Park space is not sold and is leased out, lease amount could be Rs 60-80 per s . f. Even in such a scenario, GEE's share of lease rental could be Rs 12-15 crores each year

7. As per latest guidelines relating to IT Park in this area, mix use development is allowed permissible. If GEE goes for this model of development, then around 20% space could be developed into residential,a segment where market price is at least 50% higher than commercial/IT space.

8. TP Rs 100+ in 15-18 months. Appreciation to be much steep if held for 3-5 years

BACKGROUND:

Originally known as General Electric and Equipment Ltd in German collaboration, later on, existing promoters had bought out German collaborator and was named as GEE Ltd.  GEE Ltd is amongst the leading manufacture and supplier of WELDING CONSUMABLES, having its plant at Kalyan and Calcutta.

GEE is producing wide range of welding consumables, namely:

Shielded Metal Arc Welding

Gas Tungsten Arc Welding

Gas Metal Arc Welding

Flux Cored wires

Brazing Wire and Flux

Submerged Arc Welding

GEE is supplying its products to big indian corporates like:

NTPC, EIL,HINDUSTAN PETROLEUM,BHARAT PETROLEUM,ONGC,TATA STEEL,TATA MOTOR,SAIL, JSPL,ESSAR,BHEL, RELIANCE  INDIAN OIL etc

FINANCIAL TRACK RECORD:

                     2014-15      2013-14   2012-13    2011-12

Sales              180            167         186         173

PAT                2.37          4.28       4.64        7.14

Equity               4.72

For FY15, GEE had witnessed substantial decline in its profits which were 2.37 crores as compared to 4.28 crores in FY14. In the past, GEE has been reporting excellent nos as its PAT for FY11 was Rs 9.21 crores and Rs 7.14 crores in FY12.  Sharp decline in profits for FY15 was due to some special one-time provisioning.

CURRENT PROSPECTS:

                               Q u a r t e r  E n d e d

                            30-06-2015       31-03-2015

Sales                      42                49

PAT                       1.50             -0.10

GEE has already made strong turnaround in Q1 wherein its PAT is Rs 1.50 crores as against LOSS of Rs 10 lacs in Q4 of FY15.

GEE WILL CONTINUE TO REPORT SIMILAR PERFORMANCE IN EACH OF FY16 QUARTERS.  PAT FOR Q2 IS LIKELY TO BE 1.48 CRORES.

                         2015-16E

Sales                 195

PAT                   6.50

Equity                4.72

EPS Rs             2.75

At Cmp , GEE is trading at PE Ratio of 12.70 (FY16Eeps) although industry leader Esab is getting PERatio of 30+. With GEE regaining lost ground, its valuations are bound to be much higher

BIG TRIGGER: REAL ESTATE:

GEE Ltd owns vacant plot admeasuring 3 acres at prime location in Thane City. Market value of this plot should be Rs 100+ crores.However, GEE is not interested to sell the plot as it does not such huge funds for its core business of welding consumables. Hence, GEE is intending to induct a leading/branded real estate company as JV

Partner who shall be responsible for construction/development and market of proposed IT Park. As per MIDC policy, IT Park is entitled for 100% extra FSI. As a result, approx 5 lac s f of carpet area can be developed as IT Park on this plot. As industry norm, Developer (who bears all construction costs) normally gets 60% of total saleable space (or 60% of total revenue being realised from sale of space) and land owner gets 40%.

SCENARIO 1:  If entire space is outright sold, it can fetch total revenue of roughly Rs 500 crores.  Presuming that GEE gets 40% as revenue share, GEE SHOULD BE GETTING  Rs 200 crores (of course, spread over period of 5-7 years). Since construction expenses to be borne by developer, ENTIRE REVENUE of GEE should be PBT.

SCENARIO 2: If entire space is leased out and not sold on outright basis, it may fetch Rs 60-80 per sqft as monthly rental. It will translate into total lease income of Rs 3+ crore per month. Thus, GEE's share of lease revenue COULD BE Rs 12-15 CRORE PER ANNUM

Development of IT Park on this location will be highly successful as Thane has emerged amongst fastest growing cities of Maharashtra and is now densely populated. And MIDC has come out highly encouraging policy for IT Parks wherein:

FSI is 100% Extra 20% allowed for Recreational, Residential, Sports and other facilities Exemption from electricity duty Electricity will be available at Industrial rate (and not commercial rate which is significantly higher) 100% stamp duty exemption 90% stamp duty exemption in lease Exemption from Octroi/Entry tax/LBT and other cess

Relaxation under Labour Laws  Hence, development of vacant plot into IT Park will completely change fortunes of GEE Ltd as it will have MULTIPLIER effect on its earnings after 2-3 years. Further, core business of welding consumables will also get better valuations with higher earnings current year onwards.

GEE Ltd has potential to deliver  OUTPERFORMER/MULTIBAGGER appreciation. Under normal market conditions, GEE share price can cross Rs 100 mark in 15-18 months and appreciation can be much steep if held for 5-7 years. Equity is small and high promoter stake means low floating stock which can fuel stock price faster and higher.

Only risk could be delay in finalising JV Partner.

DARK HORSE: TRIVENI GLASS LTD 

Promoters of Triveni Glass Ltd are amongst pioneers in glass industry in India. TGL has commenced its operations in 1976 for manufacture of Float Glass. Subsequently, company had also set up plant in Meerut and 2 plants in Rajamundry for manufacture of Figures/Patterned Glass. Due to various expansions , TGL was suffering from large debt and simulataneously, float glass manufacturing had become loss making business. Hence, TGL had decided to close down its Allahabad factory and Meerut plant. Currently, 2 plants of Rajamundry are operating ( at

low capacity) where Figured/Wired/Patterned glasses are being produced.

Figured/Patterned glasses are decorative glasses with pattern on one side/surface. Patterned glasses offer decorative benefits to Architects, Builders, Interior designers giving exciting designs for Homes, Offices, Restaurants, Hotels etc

Patterned glasses are used for:

*Office Partitions

* Glass doors and Windows

*Glass tables

*Shower cubicles

*Shelves in fridges/Shops

*Upmarket homes

OUT OF DEBT TRAP:  In order to rid of large debt, TGL had gone for One Time Settlement with all lenders and decided to sell its Meerut plant and Allahabad plant to pay off OTS amounts.

TGL had sold its Meerut Plant to a Japanese co for Rs 20 crores in 2012 and used the proceeds to pay off HSBC, SBI and IDBI.

Allahabad plant is closed since 7 years which is one of the biggest in India in Gloat glass. This plant is spread over 72 acres of land, is touching new highway. At that time, TGL had enjoyed the distinction of second best float glass manufacturer in India with 400 TPD plant. Its rival Saint Gobain had installed capacity of 1000 tonnes and had spent 995 crores for its Chennai plant.

TGL had outstanding loan of Rs 110 crores as on 313/03/2014 . Same came down to Rs 49 crores as on 30th September 2014. Break up of the debt as under:

Canara Bank  Rs 5.90 crores

SBI               Rs 3.27 crores

IDBI              Rs 35.50 crores

Others           Rs 4.33 crores

TGL has written back amounts benefitted from OTS in Q3 results of FY15. Hence, Book Value of TGL has BECOME POSITIVE due to write back of interest (waived, no more payable)

FINANCIAL PERFORMANCE:

                                  Y E A R       Y/ENDED

                                31.03.2014      31.03.2015

                                   Rs/Cr              Rs/Cr

Sales                          49.11             45.30

Net Profit/Loss               6.67             -3.86

Equity                                               12.62

EPS Rs                       5.28             -3.06

For FY14, TGL has reported sales of Rs 49 crores and PAT was 6.67 crores. Eps stood at Rs 5.28. During the year, company had one-time write off for 2.23 crores. But for the same, Eps would have been still  higher

For FY15, TGL slipped into losses as co reported NET LOSS of 3.86 crores on SALES OF 45.30 crores. Main reason for sharp deterioration in profit margins was due to temporary slackness (a new co in U.P. had commenced production of similar product range) due to new competition from a fresh entrant  AND TGL stopped receiving gas from KG Basin. As a result, its production cost shot up as TGL has been running its plant on diesel

FUTURE OUTLOOK/BREAKING NEWS:

It is reliably learnt that company has FINALISED sale of its Allahabad plant for Rs 85 crores. Announcement in this regard is expected by August-end 2015 itself. And TGL has already RECEIVED advance/part payment against sale of this surplus land. Out of 85 crores, TGL will use Rs 49 crores to pay off its entire debt. It shall leave TGL with cash in hand of around Rs 36 crores. It works out to Rs 30 PER SHARE CASH IN HAND.

Against the same, share is quoting only at Rs 15/.

Patterned glass is a profitable business and has good future due to increased useage of same in offices/homes/hotels/restaurants etc.Presently, its Rajamundry plant is working at LOW capacity due to paucity of funds. Rajamundry plant is in Godavari basin where ample gas and electricity is available which are major input costs for glass manufacturing. In FY14, TGL has achieved Eps of Rs 5.28 (although company had written down some bad debts and old inventory). Although not sure, as and when KG Basin gas supply resumes, TGL can achieve excellent profit margins

SHAREHOLDING;  As per Bse website, promoter holding is 6.6%. However, we believe that 8.54% shown in name of 3 entities as Public category BELONG TO PROMOTERS. We also believe that another 10% in different

names (less than 1%, hence not visible in shareholding) also belongs to promoters. Finally, IDBI holds 28% shares under pledge which have refusal of first right with promoters. Thus the collectived holding of promoters should be around 53%.

Once TGL pays off its lenders and surplus cash in hand (payment to be received from sale of Allahabad land), performance of Rajamundry plants will witness huge improvement. Firstly TGL will be in a position to incur some capex for modernisation of the plant. Secondly, TGL may also go for capacity expansion. Thirdly, profit margins will also improve (after OTS is buried).

LATEST RESULTS:

                          Q1/FY16        Q4/FY15

                          Rs/Cr             Rs/Cr

Sales                  14.70             15.26

NP/Loss                1.12             -3.95

Eps Rs                  0.89

QoQ basis, TGL has reported vast improvement in Q1 of current year. As against loss of 3.95 crores in Q4 of previous year, TGL has achieved NP of 1.12 crores in Q1 of current year.  TGL is importing some equipment from China. This equipment will be ready installed by October 2015 and operational from November 2015. It will help reduce fuel consumption considerably and TGL will make substancial savings on fuel consumption. Hence, TGL can report big improvement in profit margins from Q4 of current year

TGL CAN REPORT EPS of Rs 6 for FY16 and Rs 9 for FY17.

Current market cap of TGL is only 19 crores (against expected CASH IN HAND of Rs 30 per share)  is a steal, dirt cheap. Scrip is lying low because it is in T group with 5% circuit filter. Small quantity of promoter holding is in physical form . If promoters can demat these physical shares,scrip will come out of T group. Then scrip can make sharp gains. Worst is over TGL. Upon receipt of full considation of land

sale, Scrip should be re-rated. Investment in TGL at current levels has very low downside (worst case scenario). Stock price can double (under normal market circumstances) in next 3-4 months  and can be Rs 80 in 24 months

JINDAL POLY INVESTMENT AND FINANCE CO LTD : CMP Rs 86. Book Value Rs 647

 

JPIFL, belonging to Jindal group, is engaged in business of Investment  and Finance. JPIFL does not have any manufacturing or trading activities.

 Stock is recommended for investment as stock is quoting just 0.15XBook  Value. Book Value is Rs 647 but Cmp is just Rs 92.

For FY 13-14, JPIFL had earned NP of Rs 7.38 crores which transalated  into Eps of Rs 7.02. However, during FY15, JPIFL had incurred loss of 16 lacs.

INVESTMENTS:

 Name of Company                           Amount Rs/Crores      Instrument

Jindal India PowerTech                     154.10                      Equity

Jindal India PowerTech                     372
 Preference Shares

Jindal Poly Film Investment                86.65                      Equity

JPIFL also has some small investment in quoted companies.

COST OF TOTAL INVESTMENTS IS Rs 616 Crores.  Equity is 10.51 Crores. Thus, value of investments works out to Rs 586 PER SHARE.

VALUATIONS AND MAIN TRIGGER:

1.  Investment companies  get lower valuations on the bourses  (compared to Book Value/Value of Investments). However, in case of  JPIFL, CURRENT MARKET PRICE IS JUST 15% OF BOOK VALUE.  If JPIFL  deserves valuation of at least 0.30XBook Value. It translates in STOCK  PRICE OF Rs 190+

2.  Out of total investment, amount of Rs 526 crores is invested only  in JINDAL INDIA POWERTECH. Jindal India Powertech is setting up  1200 MW Power plant. It is reliable learnt that Jindal India PowerTech  is being taken over/bought by JSW Energy. TALKS ARE ALREADY UNDERWAY.  Deal should be closed any time in 2016.

As per our estimates and information, JPIFL's sale of its investment  in Jindal India Powertech should fetch CASH of Rs 700 crores+.  It  means there is likelihood of JPIFL GETTING nearly Rs 700 PER SHARE AS  CASH IN ITS BOOK. Once it happens, stock price of Jindal Poly  Investment and Finance can cross Rs 250 (in 2016)

Galada Power & Telecommuncations Ltd Rs19.80: Poised for Take-Off

RATIONALE FOR RECOMMENDATION:

1. Co is in Power sector manufacturing Aluminium Rods and Aluminium Conductors (product same as of Apar Ind, Sterlite Tech).

2.  OTS (One Time Settlement) done with IDBI/UTI for just Rs 26 crores.

3. Additional interest and Damages of 215 crores already waived by SASF/UTI.

4. GPTL has non-core assets. Market value of same are more than Rs 45 crores against current market cap of 14 crores.

5. GPTL planning to sell part of non-core assets to pay off OTS money and try to become DEBT-FREE.

6.Presently, plant operating at low capacity on job-work/conversion basis. Subsequent to settlement of OTS dues and if Galada can generate bank guarantee post selling of non-core assets, company should be in a position to produce and sell on its own which can enable it to attain Sales of 250 crores for FY18.

7. One Rod making plant lying at Mumbai customs since several years.If company succeeds in clearing this plant from Mumbai Customs (after waiver of demurrage), this plant can double its rod making capacity.

BACKGROUND:  GPTL is engaged in production of Aluminium Alloy Rods with installed capacity of 22000 tonnes and Aluminium Conductors with installed capacity of 24000 tonnes at Silvassa. Company has closed down its Hyderabad plant and this surplus land is for sale. Once a dividend paying company making profits, GPTL had fallen into bad times due to slowdown in power sector, nonreceipt of payments from SEBs and excessive capex.  As a result, company had accumulated large debt which it was not able to service. Banks had frozen all credit limits and company started operating its plant on lower capacity and that too on job-work/conversion basis. Since, company's networth had become negative, GPTL had gone BIFR for rehabiliation package.  After years' of struggle and negotiations, finally GPTL is on path of recovery as OTS has been finalised with IDBI and UTI which is huge huge relief to

GPTL.

FINANCIAL PERFORMANCE:

                           

Currently, there is nothing great about financials of GPTL as company is not producing and selling on its own. Rather, company is doing conversion work for other companies like Apar and Sterlite and plant operating at low capacity due to paucity of working capital.

                                    Q1/FY16

Income from Jobwork         0.78

Loss                                -0.70

Other Income                    1.79

Interest                             0.73

NP                                   0.36

In Q1, GPTL had done job work and operating at very low capacity. GPTL made Other Income of 1.79 crores by selling part of non-core assets. 

However, now, ITS ORDER BOOK FOR JOB WORK IS FULL UPTO MARCH 2016 AND PERFORMANCE OF H2 WILL BE SUBSTANTIALLY BETTER. As per our estimates, from Q3 onwards, GPTL may generate Profit Before Interest (but after depreciation) of 35 lacs PER MONTH. EVEN IF GPTL CONTINUES WITH JOB WORK, AT FULL CAPACITY, GPTL CAN REPORT PAT OF 3 CRORES FOR FY16.

MAIN FEATURES/SIGNIFICANT DEVELOPMENTS:

1. In FY14, GPTL had written back 8.62 crores as it had settled with IDBI its liability (leased equipments) of 9.72 crores for just 1.10 crores.

2. GPTL has finalised OTS with IDBI and UTI for total sum of mere Rs 26 crores. As a result, it has written back amount of 77 crores which is reflected in above results.

3. Loan of Canara Bank and IIBI has been taken over by Edelweiss ARC. Loan of Syndicate Bank is also likely to be taken over by Edelweiss ARC. This total liability of these 3 banks is likely to be settled for Rs 5 crores and same may be concluded in Q3

4. SASF/UTI has already waived Additional Interest/Damages of Rs 315 crores.

5. GPTL is providing in books Interest charges of roughly 6 crores. Same is mere accounting entry. Company is not PAYING the same. Once all formalities pertaining to OTS with all banks/lenders are done, there will not be any interest cost of this 6 crores.

6. As per terms of OTS with IDBI, GPTL can make payment of same in quarterly EMIs by adding 12% interest . However, GPTL may sell any/part of its non-core assets to pay off in 1 shot entire OTS amount. GPTL has the following surplus/non-core assets:

A. GPTL has 3.80 acres of land in Uppal Hyderabad which is just 500 mtr away from under-construction Metro. Fair market value is this land parcel is 25-30 crores

B. GPTL also has 6.50 acres surplus land in Patancheru. Fair market value of this land parcel is 12-15 crores.

C. GPTL also owns part of Galada Tower in Hyderabad. After keeping some space for its office use, if Galada sells surplus space, same may fetch nearly 8-10 crores.

Thus, TOTAL MARKET VALUE OF SURPLUS ASSETS IS BETWEEN 45 TO 50 CRORES. Against same, its market cap is hardly 14 crores.  Part sale of these assets is enough to pay off OTS amount and become DEBTFREE.

7. Finally, company had imported in 1997rod making plant from Germany for Rs 12 crores (same is shown in its annual accounts as "Machinery in Transit).

However, company could not clear the same from Customs as it had already fallen into bad times and due to funds crunch, could not make payment of custom duty. This plant still lying in Mumbai customs. As on date, custom duty of Rs 30 lacs and demurrage/warehousing charges of bonded warehouse are 3.52 crores Company may try (through BIFR) waiver of demurrage charges. Although it may happen only in 2017 but once this plant is cleared from Customs (and this plant will become operational by replacing softwares costing less than 2 crores), PRODUCTION CAPACITY OF ROD WILL DOUBLE. Brand new plant (lying in custom) of same size as on today will involve investment of more than 60 crores.

When GPTL succeeds in selling some non-core assets , becomes debtfree and manages to get surplus funds (or some borrowings from banks), GPTL can start producing Rods and Conductors on its own which can fetch turnover of nearly 250 crores per annum. POWERGRID is very keen to place orders with GPTL.

17 years back GPTL had done share issue @ Rs 40 per share and its share price at Bse had touched Rs 110/.

With above developments, GPTL has entered the lane of strong recovery. Worst is behind.  Considering that part sale of non-core assets can enable GPTL to become debtfree, GPTL at current market cap of 14 crores is dirt cheap.

Once GPTL attains turnover of 250 crores, its PAT can be more than 15 crores. because its fixed overheads like Salary/wages, depreciation will remain almost same (at current levels) and Finance Cost will almost vanish.

A DARK HORSE.  A VERY VERY STRONG BUY.  If all goes well as under planning at present, GPTL should deliver REAL MULTIBAGGER appreciation to its shareholders. Share price can be Rs 45-50 in next 9-12 months and can cross even 100 mark in next 2-3 years.