Yashraj Containers- Money Multiplier

E. Mathew's latest Research Report

YASHRAJ CONTAINEURS LTD. Business Profile: The company is in the business of manufacturing steel barrels/drums and plastic barrels. Started in 1993 it was originally known as Vasparr Containeurs Ltd. The barrels are made in the sizes ranging from 180-235 lts. The chief users are IOC ( 28% of the output), HPCL(32%), BPCL(15%), and Micro Inks(7%) apart from Reliance Inds., United Phosphorous, Mother Diary, Amul Ltd and the defence units. The barrels are mainly used for storing and transportation of paints, lubes, oils, food and pesticides. The steel barrels have thickness varying from 0.8mm to 1.25mm. The process involves cutting of CR sheets to various sizes, rolling, welding (with a 2.2mm overlap, fixing the base and lid with vents and painting and coating the inside as desired by the customers. The company is the second largest producer of barrels after M/s. Balmer Lawrie Ltd. and the largest in Private Sector. The steel barrels contribute about 98% of the turnover and the balance is contributed by plastic cans/containers. The contribution of oil companies to the turnover is presently 65% and non-oil 35% which will in 07-08 be 55% and 45% respectively. The company had to write-off bad debts amounting to Rs16crs. This included clients like Rinki Petro. Improvements The rejection rate of drums have fallen from 3.2% in 02-03 to 0.45% in 05-06( six months). Similarly wastage in steel cutting which was 9% has been reduced to 3% after introduction of stagger blanking machines. Manufacturing The conversion time of raw materials to finished products is 7 days. The average debtors is outstanding for 90 days. All purchase of raw materials is by way of advance payments. The raw materials constitute about 60% of the cost of a barrel and other overheads another 10%. The cost of a 200 ltr barrel is Rs550 and selling price Rs775 at a profit of Rs.225 The conversion time of raw materials to finished products is 7 days. The average debtors is outstanding for 90 days. All purchase of raw materials is by way of advance payments. The raw materials constitute about 60% of the cost of a barrel and other overheads another 10%. The cost of a 200 ltr barrel is Rs550 and selling price Rs775 at a profit of Rs.225 RESTRUCTURING The company after passing through a lean phase and downturn in business in 03-04 and 04-05 is in the process of restructuring. The total accumulated losses of Rs35 crs. is likely to be set-off against profits of Rs.17.44 crs. Due to reversal of interest provision against borrowings from IDBI and GSFC, share premium on preferential allotment of warrants of Rs.12crs. and better profitability. The company has an interest outstanding of Rs11.38 crs. to IDBI and principal of Rs.12.30 crs. The company has entered into a one time settlement of Rs.13.10 crs thus saving Rs.10.58 crs. Similarly the outstanding of principal and interest of Rs.10.80 crs to GSFC is being settled at Rs3.94 crs. thus saving Rs.6.86 crs. The company will do a turnover of Rs.70 crs for 06-07 and a bottom line of Rs9.60 crs and a estimated turnover of Rs.110 crs for ’08 with a bottom line of Rs15 crs. The equity will move up from Rs.4.80 crs to Rs.7.80 crs on conversion of warrants in Aug.’07 Constraining factor The constraining factor in any expansion is the welding capacity of the unit which is 350 barrels per hours shift. The capacity of assembly line is 400 barrels per hour. The company presently working on a single shift, plans to raise it by half a shift to increase the welding capacity to match the total capacity of other machines. Growth driver The company has issued 30 lac warrants worth Rs.15 crs to promoters. The money will be brought in by the promoter over the next 12 to 18 months. The money received will be used to pay i the liability that it has towards IDBI where it has to repay about Rs0.33 cr per month spread over 36 months. The promoters have already invested Rs.605 lakhs by way of application money towards preferential allotment against which the company has already installed an additional barrel line at Chennai with an investment of Rs.300 Lakhs and also has opened and LC in support of additional barrel line to be installed in east zone with a total investment of Rs.3.25 Lakhs. The Rs.21 crs. pumped in will be used to repay Rs12crs to IDBI and about Rs3.94 crs to GSFC. The two assembly lines- one each in Chennai and Kanpur will manufacture 30000 barrels per month from each of these locations. The two units are expected to contribute about Rs.14 crs each to the topline beginning April’07 The remaining Rs.3 crs. will be used for enhancing working capital for the 3 units. The output of Daman plant will be increased by one more shift wherein drums will be compressed and dispatched to the two new assembly units. These compressed drums will be blown back to original size, base and top with vents fixed, painted and dispatched. The company also proposes to import a barrel pressing machine which will compress the barrels. Financials(Rs. in crores) ==================================================== 06-07 (Projected) Turnover* 70 Other income 0.30 Material cost 53 Administrative cost 6.20 Interest 4 Depreciation 2 PBT 10.20 Tax 2.04 PAT 8.16 Equity 4.8 EPS 17.00 ===================================================== General Disclaimer : - Mathew Easow Financial Services, Mathew Easow and their relations, business associates and clients have a vested interest in Yashraj Containeurs Ltd. and will benefit if the prices move up or down. 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