Forbes & Company-Thirsty for growth

Forbes & Company  is one of the oldest companies (since 1767) in the world still in business.Over the centuries, the management has moved from John Forbes’s family to the Campbell’s to the Tata group and now finally rests with the Shapoorji Pallonji group.

Time and again the company has flattered,only to deceive. The 20 year high low of the stock is Rs.1039.70 ( 2008) and Rs.38.05 (2001). Since the present management (Shapoorji Pallonji) have taken over about 9 years back ( from Tata’s and minority shareholders between Rs.80 and 90 per share), the stock price has risen from about a Rs.50 / 60 level ,and, of late, settled in the range of Rs.300 and 500 during the last 3 years except a brief spurt to Rs.618 in June 2009.

The company has been liberal in production of off springs ( more than 30 subsidiaries / associate companies) . Most of these have miserably failed to do anything noteworthy- the one excpetion being Eureka Forbes ltd. A great deal  about Eureka Forbes is widely known and henc e we’ll not dwelve too much into it.

The company today alongwith its subsidiaries/associates has the following businesses:

1)      Engineering: Precision Tools & Energy solution ( Steam Turbines & Centrifugal Blowers

2)      Shipping & logistics: CFS ( JNPT & Mundra), Freight forwarding

3)      Consumer business: Water Purifier & related, Vaccum Cleaners, Eurovigil ( Home / office security automation solutions), Air Purifiers

4)      Transaction Management Solutions ( Forbes Technosys) : ATM’s, Note counting machines,Fake note detectors, Bill payment kiosks, Cheque processing, Micro ATM’s, retail automation, UID kits and many others, a large part of which offer solutions for rural retail banking expansion.

Possible catalysts in the near/ medium term:

1)      Swadeshi Mills: Application has been made to the Mumbai High Court to get Swadeshi Mills out of liquidation. Shapoorji Pallonji group has deposited Rs.85 cr with the court towards settlement of workers dues. Swadeshi Mills owns 3 plots totalling 54 acres in Sion/Kurla of which one plot of 17 acres is encroached upon, so about 37 acres is available for development. If liquidation release approval is granted by High Court, Shapoorji Pallonji group & Forbes will jointly develop the property. Forbes owns about 23 % in Swadeshi Mills. It has also 58 cr old loan dues from Swadeshi. If all goes well, minimum conservative estimate ( after considering portion to be surrendered to BMC/ MHADA etc) cash flow benefit to Forbes will be about Rs.200 cr over a 4 year period. This is over and above the 58 cr loan dues.

2)      Chandivali ( near Powai) land dispute resolution:  A dispute over ownbership of 13 acres of land belonging to Forbes ( and supposedly sold by the erstwhile Tata mgmt in the mid 90’s to Videocon properties ) is close to being resolved and the property may be developed jointly. If all goes well, minimum conservative estimate ( after considering  Videocon property’s share etc) cash flow benefit to Forbes will be about Rs.300 cr over a 4 to 5 year period.

3)      Breach Candy property  re- development: Redevelopment of Volkart House located off Peddar Road, near Sophia College is expected to commence within the next 12-18 months. This property is jointly owned by Forbes & Tatas. Forbes owns about 14 residential apartments here of about 1000 square feet each. This is a prime location. Presently there is not much clarity on the developable area etc and hence we will not consider the cash flows from this  while bearing in mind that surprises, if any will be hugely positive.

4)      The standby charter covenant of SCI Forbes has been negotiated with the banks who have agreed to keep the same suspended from July 1, 2011. Consequently cash losses to the extent of about Rs.22 cr per year will stop from that date.

5)      Forbes Technosys is seeing huge growth and expected to break even by 2013

6)    Eureka Forbes holds about 55% market share in terms of value in the Indian water purifies market and continues to be the market leader in the Rs.2000 cr Indian water purifier market which is growing by about 18%.  Though the company has no plans to list on the exchanges, any plans by rival Kent RO systems  to list ( no plan currently) , will enable set benchmark valuations for the sector.

Consolidated Financials:

Paid up equity: Rs.12.73 cr

Debt: Rs.383 cr

Current Market price: Rs.400

Market Cap: Rs.509.20 cr

To sum up the case, Forbes & Company seems strategically poised to take off in the near future. Sweating of its real estate assets will play a crucial role in this.

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.