Friday, October 12, 2012

Jollyboard Ltd-Interesting times ahead

 Jolly Board is the largest fiberboard company in India offering a comprehensive range of products .

The Company was incorporated on 10th December,1956 in Mumbai The comprehensive product range manufactured includes Bitumen Impregnated Softboard, Plain Softboard, Laminated Softboard, Painted Softboard in various thickness and multiple surface textures. The company also offers exclusive products like non-combustible and acoustical ceiling tiles. This is basically a coating given under the concrete cement in bridges/airports/construction to prevent it from cracking.
Nearly 70% of the production is exported.

The company has four mills for the production of Softboard, Bitumen Impregnated Softboard and mineral wool board. These four units produce 100,000 cubic meters of Soft Board annually..
The Company had issued Bonus Shares in the Ratio of 4:1. In the year 2008

Manufacturing :
Sangli plant: located on a plot of 100 acres
Aurangabad plant: located on a plot of 25 acres
Kanjurmarg plant :  was located on a plot of  30 acres ( this is in the process of being co-developed with Lodha developers)
Number of employees: 195
Promoters: 89.89%
Non promoters: 10.11%
Of this 10.11% , 2.13% stake(97.038 shares) is held by Nansha Trading Pvt ltd. Nansha Trading Pvt Ltd has no held less than 2% stake post Sept 2004 ( nearly 8 ½ years).

Balance Sheet:
Paid up equity Capital : Rs.4.55 cr
The company also has outstanding Cumulative redeemable preference shares  worth Rs.2.05 cr
Debt: Rs.4.35 cr ( approx 3.08 cr sales tax deferement loan & balance cash credit facility)
Cash & cash equivalents (liquid MF): Rs.17.2 cr ( as of March 31, 2012)
Market price: Rs.330
Market Cap: Rs.150 cr
Financials  ( 2011-12)
Revenue : Rs.75 cr
PAT: Rs.10.18 cr
EPS: Rs.17
Dividend: Rs.10 per share
Q1 2012-13
Revenue: Rs.21.95 cr
PAT: Rs.3.17 cr

 Mr. Arvind Jolly is at the apex of the Jolly Group of Companies, a Group with varied interests -
 The genesis of the Group can be traced back to post India’s Independence in the construction field.  As builders of repute the Group is responsible for many landmarks in Mumbai and the prestigious Koyna and Bhatsa dams in India (Shah, Salzgitter and Jolly were the Contractors appointed to construct the Koyna Dam. )
Mr. Jolly is one of the earliest collectors of contemporary Indian art and has a collection of over 400 paintings.  As a private collector his must be one of the finest collections of paintings held by any private collector in Mumbai.  In his bungalow at Malabar Hill every inch of space is occupied by paintings of leading masters like M.F. Hussian, Brota, Kishen Khanna, Ram Kumar, Manjit Bawa, Satish Gujral and numerous other artists.  Mr. Jolly’s acumen of collecting art can be gauged for the fact that most of the paintings were bought 30 years ago when these artists used to sell these paintings for a few thousand Rupees.
Source :

Dividend record for the last 8 years:
2005: Rs.1.20
2006: Rs.2.50
2007: Rs.5
2008: Rs.20
2009: Rs.10
2010: Rs.13
2011: Rs.15
2012: Rs.10

Key challenges in the core business & the  steps taken to address them :

The board business for any company anywhere in the world is a challenging business and a profit of 10% p.a. is considered a great performance.   Besides the banning of wood, the company has had to face major challenges like new environmental and pollution laws.
 The company manufactures  by the ‘wet’ process and has to treat all the water they discharge.  The re-use of water has helped them to meet the environment regulations, but has caused quality problems, as the board does not have the white finish which is required for the local furniture market and has odour in some seasons.  In order to circumvent this problem the company has invested in a 100 tonne per day evaporator from Praj Industries which will treat the water and the company will not have to re-use it. This is likely to result in a board better in looks and also odourless.
In the past 3 years the company has not been able to increase prices neither in the export market nor in the local markets.  At the same time  manufacturing  cost have  increased by 10% p.a.  In order to meet the challenges, the company is trying to produce more and have invested in a new energy efficient 18 tonne boiler from Thermax at a cost of Rs.7 cr and a pulping machine at a csot of Rs.3 cr to improve the quality and reduce energy cost. 
The company has  two types of customers:
·         The first type are the ones who use it for furniture and pin boards, and they want the boards to be as white as possible. 
·         The second type of customers are those who use it for expansion joint fillers and construction and they want the boards to be as black as possible.
The company has modernized the Sangli plant with new boiler, pulping equipment, & evaporator with the intent to improve  quality ,reduce the manufacturing cost and double  production. 

Kanjurmarg Realty:
The company had entered into a co development  agreement with Lodha Developers for its land at Kanjurmarg under which the developed area would be shared by the developer and the company.The cost of construction and development of the project would be borne by the developer. An IT Business Park which will occupy an area of 2 million sq.ft has been completed in  the first phase.  Another 1 million sq.ft. in the second phase at an adjoining premises at Kanjur Marg is in progress.
As per the 2010-11 Annual Report,The total built- up area that will be developed under Phase-II will be about 10 lakh sq.ft. Of the total developed area, Jollyboard will get 4.50 lakh sq.ft. area but will
have to hand over 1.00 lakh sq.ft. area to the Government for amenity blocks as per the terms of Government approval leaving net developed area of 3.50 lakh sq.ft.  for the Company.

Annual Report of 2011-12 does not provide much clarity on the above except saying that the Phase II has been delayed due to various permissions and that Municipal Corporation of Greater Mumbai has formulated new DCR regulations under which 35% areas which were available as free FSI will now be charges under fungible FSI. It goes on to say that as property owners in the joint development agreement, some of these costs will have to be borne by the company. The capital work in progress include Rs.67.53 cr being expenses incurred towards FSI premium, TDR purchases and cost of amenity block to be handed to MCGM.


Though there is not much clarity on the current status of the company’s share of 3.50 lakh sq.ft of developed space in Phase II, one can safely assume the realizable market price of the same to be not less than Rs.300 cr ( assuming a Rs.3000 psf discount on the prevailing rate of about Rs.11,000 psf).

From Phase I, the company has leased out office space from which it has earned annual lease rent of around Rs.3.75 cr last year. Wearing the conservative hat, even if one considers a higher rental yield of about 5%, the property price should be in the range of Rs.75 cr.

Promoters will have to dilute their stake to 75% in the next 9 months or delist the company. Considering that they own a little less than 90% ,if they opt for the delisting option, even if the same were to happen @ 2X current market price, i.e Rs.660-700, promoters won’t have to shell out more than 30-33 cr. If one thinks from the promoters point of view, it won’t be such a bad deal for a company sitting on about 17 cr of cash equivalents, realizable property value of about 375 cr plus an existing business in which the company is the market leader domestically and operating out of 100 acres of land at Sangli & 25 acres at Aurangabad.

Should be interesting to watch the developments here over the next few months.

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.


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  2. What do you think on the delisting price. From the current floor price of INR 350, will they atleast increase to around 450 which is current market price.

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