gillander arbuthnot & company report dated 3rd december 2008

8/14/2019 GILLANDER ARBUTHNOT & COMPANY REPORT DATED 3rd DECEMBER 2008

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Old economy company:-

Gillanders Arbuthnot & Co. Ltd.has a rich heritage intricately linked with theundivided British India. The company started itscorporate journey in the year 1819 when Mr. F.M.Gillanders and Mr. G.C. Arbuthnot formed apartnership firm under the name GillandersArbuthnot & Co. Ltd.

On 1st February 1935, the firm became a PrivateLimited company and carried on business in theerstwhile British India including Burma. Thecompany then had interests in banking &finances, property management, wide range oftrading activities and as Manager Agents ofseveral other companies. The company waselevated to the status of a public limitedcompany on 28th February 1947.

Company Overview:-

Why to Buy shares of this company in arecessionary environment when everything thatcan be sold is being sold.

The company is an old economy companyowned by G.D Kothari nephew of legendaryG.D.Birla.

Company is a diversified midsizeconglomerate and operates in Tea, Engineering,real estate, lead oxide, yarn, and marketing andconstruction divisions.

Company is not a market leader in any of

the above-mentioned segments.

KEY STATS:

CMP 48.75

BSE CODE : 532716

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TEAMSTOCKRESEARCHERSPvt. Ltd.3 SUBHASHNAGAR CORNER,RAIYA ROAD,RAJKOT, Gujarat, 360007www.niftyviews.comCONTACT:09327744250CST NUMBER: AADCT0544JST001

DATE: 3rd December, 2008

VOLUME NO:

ISSUE NO:

A Report by Team Stock Researchers Private Limited http://www.niftyviews.com/


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Tea Division:Tea Division:Tea Division:Tea Division:----

The company produced nearly1% of Indias tea output. At anaverage price of 82.69 per kg therevenue from the same isshowing an up tick.In 2005 posta corporate restructuring 6 teaestates were transferred fromKothari plantations to GACL. Inaddition it also carries on thebusiness of manufacture and

sale of Phytochemicals and Fineand Synthetic Chemicalsthrough itsPhytochemicals Division havingits unit at Nagari, Madurai in theState of TamilNadu and manufacture and saleof Formaldehyde and Hexaminethrough its divisionknown as Southern SyntheticsDivision. having its unit atRanipet in the State of

Tamil Nadu. While there hasbeen some improvement in theperformance of thePhytochemicals Division, theSouthern Synthetics Divisionwas impacted adverselydue to higher input costs ofMethanol coupled with lowerselling prices ofFormaldehyde.

DIVISIONS :-

Textile Division:-

Company has two plants, onelocated in akbarbur nearLudhiana in Punjab located at 43acres of campus. Another plantof Gis cotton mills, which wasrecently merged, is located inWest Bengal. One should alsonote that the company hasexpanded its capacity recentlyby increasing the number ofspindles.

Waldies Division:-

Company is the largest producerof Lead oxides. It alsomanufactures Pvc stabilizers.


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The company has sufficient orderbacklog which is 7X FY08 sales ofthe division of 74.18 crs. Currentorder book for the division as perthe last annual report is 485

crores. Major clients are SAIL,TISCO, RINL, JINDAL Groupamong others. The division islocated at around 4 acres offactory space in sodepur, WestBengal. There is a visibility in theBusiness going forward.Real Estate Division: (AnotherGem)

Company owns a sprawlingcommercial property named

Gillander House in CentralKolkata. The snaps of the samehave been attached in thebeginning of the report. I will justlike to emphasize on some points.Reputed companies like ArevaTransmission and Distributionand spencer retail have theirregistered offices in GillanderHouse. The rental from theproperty last year was 4.96 crs.Ithas been growing at around 12%

for last five years. A good numberof tenants are occupying thespace using old rental rates. Withthe passage of time the rentalfrom this prime property will onlyincrease every year. Do rememberGillander house is located at theheart of the city in the primeBusiness area. The rental is notIt/Ites rental from a BPO firmwhich varies with the overallmacroeconomic situation. There

is absolutely no supply in thevicinity of Gillander House. Onecan visit the property himself atGillander House, 8, Netaji SubhasRoad, Kolkata 700001

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MICCO DIVISION

(Hidden gem!)

Modern India Construction Co.(MICCO),MICCO has diverse interests andproduct lines. It is engaged inthe business of structuralengineering, steel fabrication,execution of turnkey projectsand miscellaneous otherengineering works. The divisionis equipped with state-of-the-art

machineries to maintainstringent quality standards inevery aspect of its deliverables.Company has an engineeringdivision which is engaged in thebusiness of execution of varioustypes of turnkey projects in steelplants, power plants, aluminiumplants. Although the abovementioned sectors have seen aslow down in recent past.


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gillander house in dalhousie square


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Marketing division:-

Small division with sales of 18.72 crsbased in South India basically inpaints. Company has also enteredinto a marketing arrangement with 3m

India recently.

Power Division:-

6.5 MW COGENERATION POWERPROJECT at village Akbarpur,Malerkotla, Dist. Sangrur in Punjab isthe flagship project of GILLANDERSARBUTHNOT & CO. LTD. in the powersector.

Gillanders Arbuthnot and CompanyLimited are installing a 6.5 MWBiomass Power Plant with anestimated expenditure of approximate$8 million and construction is tocommence shortly as all necessaryapprovals have been taken. Theproject will be built up within thetextile mill complex, which isoccupied in an area of approx 1,74,021 Sq Mts (43 Acres). The powerplant will be built in this area and an

additional 16,188 Sq Mts (4 Acres) ofland has been used for ash disposal.It is proposed to generate 6.5 MWpower using rice husk to the extent of85% of the time and coal to the extentof 15% of the time and other biomassas fuel.Since the plant is located in thevicinity of state highway, a well-developed road network is alreadyavailable. The required water forpower plant operations will be metfrom bore wells. There will be no needof constructing housing for workersas the site is located centrally andshall generate lot of workopportunities for local population whoshall commute to the work at the siteon a daily basis. In wake of the abovefactors the project is likely to becompleted at a fast pace and shall berunning in full capacity by the year2008

Investment

Rationales:-

Over the years company hasbeen a dividend paying

company. Moreover at the Cmpof Rs 50 the tax free dividendyield is around 8%.Last year

the dividend payout was 40%.Ittranslates into a 12.18%+

dividend yield for people inhighest tax bracket.

The real estate propertyGillander house should bevalued at more then the currentmarket capitalization of theentire company.

The company had entered therough patch in 2005.For thefirst time in 20 years thecompany had posted losses.Management merged twogroup companies with GACLand hence the conglomeratewas born. Gis(Micco) foundedin 1957 was merged along with6 tea gardens of Kothariplantations.

Company now has a natural

hedge against cyclicalmovement of tea and cotton inReal estate and Captive powerplants.

The company has a total debtof 160 crs mainly in the textileBusiness.

In last 18 odd years thecompany has been a dividendpaying company. In 2005 whenit made losses the dividendpayout was maintained.

Investments should be made inthese companies which havesurvived many bear phases inpast and will survive manymore recessions in future.

The hidden value in the power plantand the engineering division issubstantial in nature for thecompany. Once market recognizesthe same valuations wont be thesame.


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Financial synopsis:-SOURCE-ASIAN CERC/TSR

RESEARCH

Profit & Loss account ------------------- in Rs. Cr. -------------------

Mar

'04

Mar

'05

Mar

'06

Mar

'07

Mar

'08

12

mths

12

mths

12

mths

12

mths

12

mths

Income

Sales Turnover 50.88 236.77 255.36 264.79 404.40

Excise Duty 1.29 7.42 7.24 4.74 9.52

Net Sales 49.59 229.35 248.12 260.05 394.88

Other Income 5.14 9.21 8.43 11.13 8.02

Stock Adjustments 0.53 3.61 -5.40 -2.70 7.09

Total Income 55.26 242.17 251.15 268.48 409.99

Expenditure

Raw Materials 21.66 127.85 124.70 134.47 212.65

Power & Fuel Cost 4.46 17.13 20.00 18.14 29.95

Employee Cost 15.90 45.36 47.32 45.81 58.41

Other Manufacturing Expenses 4.01 13.67 13.49 19.82 30.36Selling and Admin Expenses 0.00 19.56 19.64 20.21 29.15

Miscellaneous Expenses 8.16 5.76 7.55 6.79 7.74

Preoperative Exp Capitalised 0.00 0.00 0.00 0.00 0.00

Total Expenses 54.19 229.33 232.70 245.24 368.26


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Mar

'04

Mar

'05

Mar

'06

Mar

'07

Mar

'08

12

mths

12

mths

12

mths

12

mths

12

mths

Operating Profit -4.07 3.63 10.02 12.11 33.71

PBDIT 1.07 12.84 18.45 23.24 41.73

Interest 0.03 5.15 6.86 6.36 12.94

PBDT 1.04 7.69 11.59 16.88 28.79

Depreciation 2.68 5.44 6.38 6.47 10.52

Other Written Off 0.00 0.00 0.00 0.00 0.00

Profit Before Tax -1.64 2.25 5.21 10.41 18.27

Extra-ordinary items 0.00 0.63 0.43 0.29 0.21

PBT (Post Extra-ord Items) -1.64 2.88 5.64 10.70 18.48

Tax -0.56 -1.01 0.59 2.96 3.63

Reported Net Profit -1.08 3.90 5.01 7.75 14.84

Total Value Addition 32.53 101.48 108.00 110.78 155.61

Preference Dividend 0.00 0.00 0.00 0.00 0.16Equity Dividend 0.73 2.18 2.53 2.81 5.63

Corporate Dividend Tax 0.10 0.31 0.35 0.39 1.04

Per share data (annualised)

Shares in issue (lakhs) 47.60 48.48 108.79 112.23 112.23

Earning Per Share (Rs) -2.27 8.05 4.60 6.90 13.08

Equity Dividend (%) 15.00 20.00 22.50 25.00 40.00

Book Value (Rs) 111.91 216.41 107.61 108.67 122.26


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Summary :-

Company generates 38 crs of free cash flow every year. Moreover it trades at50% to its book value. I believe that the valuation is at a distress level and oneshould buy the stock with dividend yield in mind. One can book part profits at75 and 92 odd levels.

Research note prepared by

Vinayak,Varun Jain.

http://www.teamsr.co.cc/

MANDATORY DISCLOSURES:This document is for information only and is meant for the use of therecipient & not for circulation. The information contained inthis document has been taken from publicly available information,trade and statistical services & other sources. While theinformation contained herein is from sources believed to be reliable,we do not hold ourselves responsible for its Completeness and

Accuracy. All opinions and estimates included in this reportconstitute our judgment as of this date and are Subject to changewithout notice. Investors are expected to use the informationcontained in this report at their own risk. This report is not and shouldnot be construed as an offer or theSolicitation of an offer to buy or sell any securities. TEAMSTOCKRESEARCHERS and its affiliates may act as market makeror have assumed an underwriting position in the securities ofCompanies discussed herein and may sell them to or buy them fromCustomers on a principal basis.

THE STOCK IS HELD IN THE LONG TERM PORTFOLIOS OF THE AUTHORS

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gillander arbuthnot & company report dated 3rd december 2008

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