Friday, March 18, 2011

Bharat Fertiliser Industries Ltd -High risk play

Bharat Fertiliser Industries Ltd  BSE Code : 531862 ( listed since 1963)
Core Business : Production of Single Super  Phosphate (SSP)  in Granulated and Powder form along with Alum in Liquid and 
Solid Form.
Plant location :Village Kharivali, Taluka : Wada ,Thane district, Maharashtra ( This is close to Pen)
Installed capacity :  132000 TPA (SSP) and 99000 TPA (GSSP)

Paid up Equity Capital: 5.29 cr 
Debt : Nil
Market price : Rs.48
Market Cap: Rs.25 cr
Revenue : 22.8 cr
NP : 5.41 cr
9-months ended Dec 2010:

Revenue : 16.78 cr
NP : 4.64 cr

Reasons for poor performance of the fertilizer business:
Difficulties  in arranging Imported Raw Material namely Rock Phosphate  and Sulphur.
Working capital constraints due to delay in receipt of Fertilizer subsidy.
Future of  the Fertilizer business:

1)The Company is exploring the possibility of a  Marketing Tie-up arrangements with Rashtriya Chemicals & Fertilisers,Ltd 
and Deepak Fertilisers & Petrochemicals Corporation Limited during 2010-2011 for manufacture of SSP/GSSP Fertilizers.
2) The company plants to utilize surplus funds from the Real Estate business for working capital for its fertilizer plant and 
also for replairs / maintaneance /modernization of fertilizer plant and equipment.
Due to erosion in net worth ( accumulated losses exceeded 50% of the net worth ) the company was declared a BIFR case.
Subsequently as the Net Worth turned positive at Rs. 193.03 Lacs as on 31/12/2009, the company had approached  BIFR and 
prayed for discharge from purview Sick industrial Companies  (Special provisions Act) 1985.
 The Bench III of Board for Industrial and Financial Reconstruction at  its hearing held on 29/03/2010, dismissed the reference of the company
 as non-maintainable. The company is pursuing the matter with BIFR.
Turnaround reason:
The company owned 6.25 acres of land at Majiwada in Thane. This plot is adjacent to Lake City Mall, just about 1 km from 
Jupiter Hospital,3.5 km from Thane station and 0.5 km from the Mumbai-Nashik highway.
The company is developing a self sufficient purely Residential complex called ‘ Shiv Sai Paradise’ at this location
Amenities : Club house with swimming pool,Health Club, Library, Indoor/outdoor games, Multi purpose hall, garden with 
jogging track, chidrens play area, Seniors area, Podium parking, paved internal roads.
Number of proposed buildings : Total 10 ( 1st phase: 5, 2nd phase:3, 3rd phase:2)
Total approx saleable area : 
1st phase: 3.35 lakh sq.ft
2nd phase: 2 lakh sq.ft
3rd phase: 0.85 lakh sq.ft
1st phase:
This includes 2 towers of 17 floors , 1 tower of 12 floors ( all ready ) and 2 towers of 21 floors ( expected possession between
 Dec 2011 and March 2012)
Ready for possession: approx 1.90 lakh sq.ft 
Of the above, already sold : approx 1 lakh sq ft
Total proceeds realized since launch of project from the 1 lakh sq ft: approx 40 cr
Available for sale now with immediate possession : 90,000 sq ft ( rate quoted is Rs.6700 psf excluding floor rise, parking, 
other charges)
Expected to be ready for possession by March 2012: 1.45 lakh sq ft ( rate quoted for bookings is Rs.5800 psf excluding floor 
rise, parking, other charges)
2nd phase :
Work expected to commence anytime. This involves 2 towers of 17 floors each. Possesion expected end 2013
3rd phase:
Dates not announced.
Cash flow probability:
1st phase:
Income already booked in 2009-10 and 2010 till Dec : approx 40 cr
Expected to be booked between Jan 2011 and June 2012 ( i.e 6 quarters): approx 130 cr ( this is based on the conservative 
assumption that the company is able to sell about 7500 sq ft per month @ 5500 psf).
Balance expenses pertaining to the 1st phase should in most probablity get booked between Jan 2011 and Dec 2011 
( i.e 4 quarters): approx 14.5 cr ( 145000 sq ft X Rs.1000 psf )
Expected revenue per quarter between Jan 2011 to June 2010 ( may not be spread evenly) : approx 21.50 cr
Expected expense per quarter between Jan 2011 and Dec 2011 : approx 3.62cr
2nd phase:
It is too early to look into the positive cash flows from the 2nd phase.
We will restrict ourselves to the expense flows on this.
Assumption : work commences from April 2011 and carries on for 10-12 quarters. We’ll be conservative and expense out 
the amount over 5 quarters i.e April 2011 to June 2012 ( i.e 5 quarters): approx 30 cr ( 200000 sq ft X Rs.1500 psf ) i.e: 6 cr per 
Expected inflows / quarter: 21.50 cr
Expected outflows / quarter : 3.62 cr + 6 cr + 2 cr ( miscellaneous) : 11.62 cr
Assuming they pay tax @ 33%, PAT / quarter should not be less than 6 cr.
The same cycle will play out thereafter with 2nd phase earnings kicking in and 3rd phase expenses moving out.Here it should
 play out better as expected 2nd phase earnings are around 110 cr and 3rd phase expenses and others not more than 20 cr
All numbers above in the cash flow are not based on Management data and are based on reasonable assumptions made 
by the author and may not be accurate. Kindly do your own due dilegence before investing.
Other plans:
1)  Development of an SEZ in partnership with a Foreign partner at its 120 acres of free hold land at Kharivali.
2)  Redevelopment of its building at Flora Fountain in Mumbai. Expected area post redevelopment is about
 12,000 sq ft.
Negatives & risks:
The company has said that it intends to use free cash flows from real estate business to augment its fertilizer operations.

The company has not been disclosing segment related data in its results
The company primarily uses income from inventory sale to fund development costs and hence any delay in inventory sales can have  a severe negative cascading  effect.
Valuation & concluding summary:
Notwithstanding the above, the entire valuation argument gets summed up in the current Enterprise Value of 25 cr
High risk with a possibility of high return.
At the time of writing this report, the author /his family have an investment interest in the stock mentioned above. Under no circumstance does the information in this report represent a recommendation to buy or sell the above-mentioned stock.  This report has been prepared and issued on the basis of publicly available information, internally developed data & other sources believed to be reliable. This is just a suggestion solely for information purposes and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Readers using the information contained herein are solely responsible for their actions and are advised to satisfy themselves before making any investments.



  1. Hi sir,nice analysis.Yesterday they came out with results.They booked real estate income in p/l account.This income will boost balance sheet.There is certainly good value in this company.Please comment on levels to enter and mean value on your assumptions.

  2. Hi Prakash,
    i continue to remain invested.You may have also read about the company's plans to set up a residential school of intl standards on the 150 acres of free hold land it owns at Wada and also plans to build a 11k sq.ft office building for leasing at Flora Fountain, south mumbai.These are planned over the next 2-3 years . Till then Thane project monetization will continue.We have to wait and see how execution pans out.

  3. Hi sir,Thanks for reply.As per your assumption company entered into lease contract with RCFL,chembur.Company's entire SSP Fertiliser Production capacity is being undertaken for Conversion Basis by M R.C.F.L. by supply of Raw Materials including packing Material.What does it mean for company.Is it raw material procurement and marketing tie up or leasing its plant to RCFL.

  4. Very informative and innovative blog. Hats off to you for bringing these gems.Very good analysis on companies which are least known to market (Exp veterans) and are potential multi baggers.Even it is difficult to find annual reports.Please update your profile and may i know your good name.THANKS

  5. Hello Library Equity,
    can u comment on landbank held by BFRL ?
    i guess its in for re-rating