Tuesday, January 11, 2011

Indo Borax - A Ben Graham value play

I was looking at the list of companies trading below their book value and came across Indo Borax Chemicals. The company's share is trading at INR 81. The company has equity worth INR 3.481 Crore of 34,81,000 shares of face value INR 10. This translates into a market capitalization of INR 28.2 Crore.

  1. The company started paying dividend only in 2007.
  2. Dividend yield at current price is just 1.875%. 
  3. The company diversified in infrastructure and construction business by creating a subsidiary as mentioned in announcement dated 7 December 2009. The promoters hold 40% in the subsidiary and the company owns 60%. Good luck for corporate governance.
  4. The tax/PBT was very high last year when company paid INR 3.31 Crore worth of tax on INR 7.938 Crore worth of PBT, i.e. a tax rate of 41.7%. Tax/PBT was less around 33% between 2006 and 2008.
  5. I sent an email to the company to provide annual report to see the details about "Loans and Advances" which have risen from INR 7.94 Crore in FY09 to INR 22.82 Crore in FY10. Most probably they have been given to the new infrastructure subsidiary and I consider this as big negative.

  1. The company's (net current assets + investments - debt) is INR 32.75 Crore. This is the amount company can quickly be liquidated for and fixed assets are not even counted. This is more than the market cap of the company of around 28.2 Crore.
  2. The company's total net profit over the last five years is INR 27.866 Crore which is almost equal to its market cap. This is considered damn cheap.
  3. The company's operating profit margin, compared to its peers like Borax Morarji, is highest in the industry and averaged 26% over the last five years.
Thus the current market cap of the company discounts the current liquidating value of the company by around 10%. The company's plant/machinery/land and other assets are not even looked at. Seems like a compelling Ben Graham buy.
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1 comment:

Ayush said...

Hey Ninad,

There was an article in a recent Business India magazine that the company has a very good land bank (don't remember the figure...but probably worth 100 Cr)

It seems the co is developing the same through its subsidiary.

Ayush Mittal

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