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

2009-10:

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.

BIFR :

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 

quarter

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

DISCLAIMER:

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.