Business Analysis: Jyoti Resins and Adhesives

Summary

In this video, the host analyzes Jyoti Resins and Additives, a company that manufactures adhesives for wood under the brand Euro 7000. The company has a loyalty program for carpenters, a diversified product portfolio, and operates in 13 states with 10,000 active dealers. The video discusses the company's growth trajectory, competitive edge, and financial performance, with a focus on volume growth and capacity expansion. The host also highlights potential risks and the company's management history.

Takeaways

• 🏭 Jyoti Resins and Additives is a company that manufactures adhesives, specifically for wood applications.
• 🏷 Their product is sold under the brand name 'Euro 7000', which is a white adhesive liquid used by carpenters.
• 🐛 The company offers an anti-termite application, a type of adhesive that prevents insects from damaging wood.
• 📈 Jyoti Resins and Additives has a diversified product portfolio and sells in a variety of quantities, from 500 grams to 70 kgs.
• 🔑 The company's USP is a loyalty program that rewards carpenters with points for purchases, which can be redeemed for future discounts.
• 📊 They have a widespread network with 10,000 active dealers, 50 distributors, and over 3,00,000 carpenters.
• 📈 The company has seen robust volume growth, with an 8% increase in Q4 of FY23 despite seasonality factors.
• 💹 They project a volume growth of 25% over the next three years (FY23 to FY26) while maintaining a margin of 20-25%.
• 🚀 Growth plans include increasing production capacity and expanding into new states, with a focus on distribution and active dealers.
• 💼 There are concerns about the management's past, with instances of SEBI cases for market manipulation in the late 90s and early 2000s.

Q & A

What is the main product of Jyoti Resins and Additives?

The main product of Jyoti Resins and Additives is adhesives, specifically glue used in wood applications.

Under what brand name does Jyoti Resins and Additives sell their adhesives?

Jyoti Resins and Additives sell their adhesives under the brand name 'Euro'.

What is the USP or competitive edge of Jyoti Resins and Additives over other companies?

The USP of Jyoti Resins and Additives is their loyalty or reward program for carpenters, which encourages repeat business and loyalty.

How does the loyalty program of Jyoti Resins and Additives work?

The loyalty program works by crediting points to carpenters' accounts based on their purchases. These points can be redeemed to offset the cost of future purchases, effectively providing a discount.

What is the volume growth projection for Jyoti Resins and Additives for the next three years?

Jyoti Resins and Additives projects a volume growth of around 25% for the next three years.

What is the current capacity of Jyoti Resins and Additives' manufacturing plant?

The current capacity of Jyoti Resins and Additives' manufacturing plant is 2400 tons per month.

What is the potential future expansion plan for Jyoti Resins and Additives?

The potential future expansion plan includes increasing the capacity utilization to 80% and then investing in another plant, possibly in Bangalore, after 1.5 years.

How does seasonality affect the revenue of Jyoti Resins and Additives?

Seasonality affects the revenue as Q3 usually sees the highest revenue due to the festival season, while Q4 is comparatively slower. This is because people tend to repair and paint their houses before festivals.

What is the reason behind the flat revenue on a quarter-on-quarter basis despite an 8% volume growth?

The flat revenue on a quarter-on-quarter basis despite an 8% volume growth is due to the reward program where points accumulated by carpenters are treated as expenses until redeemed, which affects the revenue recognition.

What are the risks or red flags associated with Jyoti Resins and Additives as per the script?

The risks or red flags include the possibility of competitors replicating their loyalty program, volatility in raw material prices, and past management issues related to market manipulation.

What is the financial performance of Jyoti Resins and Additives like according to the script?

The financial performance of Jyoti Resins and Additives is positive, with an increase in revenue, profit before tax, and cash flow from operations, despite some concerns about trade receivables and inventory levels.

Outlines

00:00

🔍 Introduction to Jyoti Resins and Additives

The speaker begins by welcoming the audience to a business analysis video focusing on Jyoti Resins and Additives, a company known for its adhesives used primarily in woodworking. The adhesive is colloquially referred to as 'glue' and is sold under the brand name Euro 7000. The product portfolio is diverse, including anti-termite applications to prevent wood damage. The company's USP is a loyalty program for carpenters, its end-users, which offers points on purchases that can be redeemed for future discounts. This strategy has helped build a loyal customer base.

05:01

📈 Business Growth and Expansion

The presenter discusses the company's growth strategy, highlighting its expansion from a local Gujarat-based business to a nationwide presence with operations in 13 states. They emphasize the importance of volume growth over price increases in the adhesive market and detail the company's distribution network, which includes 10,000 active dealers and 50 distributors. The company's plans for the future include a projected 25% volume growth over the next three years, supported by increased production capacity and the introduction of new products.

10:01

🚀 Expansion and Market Penetration

The speaker outlines the company's history of expansion, from its initial production capacity of 250 tons per month to the current plans to increase capacity to 2400 tons per month. They discuss the company's entry into new markets and the deepening of its presence in existing ones. The strategy includes venturing into two additional states and increasing the number of active dealers to drive volume growth. The company's volume growth is evident in its financial performance, with an 8% increase in volume despite seasonal slowdowns.

15:01

💹 Financial Performance and Seasonality

The financial discussion covers the company's revenue growth, which has been flat quarter-on-quarter despite an 8% volume increase. This discrepancy is attributed to the company's reward program, where points earned by customers are recorded as expenses until redeemed. The presenter also notes the company's strong asset turnover and profit margins, driven by effective cost management and the use of raw materials. However, they caution about the impact of seasonality on the business, particularly the migration of carpenters during certain months, which affects revenue recognition.

20:03

📊 Analyzing Balance Sheet and Cash Flow

The presenter delves into the company's balance sheet, noting the increase in current assets and liabilities. They discuss the implications of the company's accounting practices on net cash flow, highlighting a decrease due to changes in how certain financial instruments are classified. Despite this, they point out that the company's cash flow from operations has improved when accounting adjustments are disregarded. The presenter also raises concerns about the increase in trade receivables and the potential impact on cash flow.

25:03

🔎 Risks and Future Outlook

The final paragraph addresses potential risks and the company's future prospects. The speaker identifies the company's promotional schemes as a potential vulnerability, as competitors could replicate these strategies. They also highlight the risks associated with raw material price fluctuations and the importance of the company's management history. Despite these concerns, the presenter remains optimistic about the company's ability to achieve its growth targets, suggesting that with aggressive expansion and effective capital investment, the company is well-positioned for future success.

Keywords

💡Adhesives

Adhesives are substances used for joining or bonding materials together. In the context of the video, adhesives are specifically used for woodworking, where they function similarly to glue. The company discussed, Jyoti Resins and Additives, manufactures adhesives under the brand name Euro 7000, which are used by carpenters to join wooden parts. This is central to the video's theme as it explains the core product of the company being analyzed.

💡Additives

Additives are substances added to a product to improve its quality or give it new properties. In the video, additives likely refer to the components that go into making the adhesives. These could include chemicals that enhance the adhesive's bonding strength, durability, or other characteristics. The script mentions that the company's products are not just glue but also include additives that serve specific purposes in wood treatment.

💡Brand Name

A brand name is a term, design, symbol, or any other feature that identifies one seller's product distinct from those of other sellers. In the script, 'Euro 7000' is the brand name under which Jyoti Resins and Additives sells their adhesives. This is important as it highlights how the company markets its product and builds recognition among its customers, particularly carpenters.

💡Loyalty Program

A loyalty program is a marketing strategy designed to reward, delight, and engage customers, encouraging repeat business. The video discusses how Jyoti Residency has a loyalty program for carpenters, awarding them points for purchases that can be redeemed for future discounts. This is a key concept as it illustrates the company's strategy to retain customers and build a loyal user base.

💡Volume Growth

Volume growth refers to an increase in the quantity of products sold over a specific period. The video emphasizes the company's projection of a 25% volume growth over the next few years. This is a significant aspect of the business model as it indicates the company's expansion plans and the strategy to increase sales by boosting distribution and market penetration.

💡Capacity Utilization

Capacity utilization is the extent to which a company is using its potential production capacity. The script mentions that the company plans to increase its capacity utilization from 50-60% to 80% and then consider investing in another plant. This highlights the company's production capabilities and its strategy to optimize operations before embarking on further expansion.

💡Distributors

Distributors are individuals or businesses that sell products produced by other companies to retailers or directly to consumers. The video mentions that the company has 50 distributors and 10,000 active dealers across 13 states. This term is crucial as it reflects the company's distribution network, which is vital for reaching customers and achieving volume growth.

💡Market Penetration

Market penetration is a measure of how much of a market a company's product has successfully entered. The script discusses the company's plans to increase market penetration in existing states and expand to new ones. This concept is integral to understanding the company's growth strategy and its ambition to capture a larger share of the market.

💡Seasonality

Seasonality refers to the regular and predictable fluctuations in the demand for a product or service according to the seasons of the year. The video script notes a seasonal impact on the company's sales, with Q3 typically seeing higher revenue due to the festival season in India. Understanding seasonality is important for forecasting and planning the company's operations and financial expectations.

💡Reward Points

Reward points are a form of currency earned by customers through loyalty programs. In the video, the company's reward program credits points to carpenters' accounts based on their purchases, which can be redeemed for discounts. This concept is highlighted as a key competitive advantage, as it incentivizes repeat business and builds customer loyalty.

💡CAPEX

CAPEX stands for Capital Expenditure, which refers to funds used by a company to acquire, upgrade, and maintain physical assets such as property,厂房, or equipment. The video mentions that the company is investing in CAPEX to increase production capacity and build a new warehouse. This is a strategic move aimed at supporting the company's growth plans and achieving the projected volume growth.

Highlights

Jyoti Resins and Additives is a company specializing in adhesives, specifically for wood.

Their adhesive is sold under the brand name Euro 7000.

The company offers a diversified product portfolio, including anti-termite applications.

Jyoti Resins and Additives operates a loyalty program for carpenters, their end customers.

The company has a widespread network of 10,000 active dealers and 50 distributors.

Jyoti Resins and Additives plans a volume growth of 25% in the coming years.

The company started with a production capacity of 250 tons per month, which has increased to 2000 tons per month.

They have a robust volume growth of 27.5% for the entire year of FY23.

The company's financials show an increase in revenue, profit, and net profit.

Jyoti Resins and Additives has a high Return on Equity (ROE) of around 55%.

The company has a significant amount of cash and cash equivalents on hand.

They are planning to expand into two new states, potentially Uttar Pradesh, Delhi, Chennai, or Kerala.

The company's management has a history of legal issues related to market manipulation.

Despite having a high market cap, the company is still considered small and has room for aggressive growth.

Jyoti Resins and Additives aims to penetrate deeper into existing markets before expanding further.

The company's reward program for carpenters might be replicated by competitors, which could affect its unique selling proposition.

Transcripts

hi guys welcome back uh today's another

beautiful day and we'll be analyzing

another business model so today I'll be

doing Jyoti resins and additives I think

most of y'all would have heard about

this company right and it had and this

company has performed really well for

the last one year right so let us see

like let us see in today's video like

will the growth trajectory continue or

you know what is the what is the future

of the company looks like right so uh

I'll just start directly with the

presentation early I'm sharing my screen

thank you

yeah so the company we are doing is

Jyoti residents and additives first let

us understand the product portfolio Okay

what is it more than the product

portfolio let us understand the business

model first what is the what does the

company do simple the company does

adhesives what does that mean in a

simple language additive is nothing but

glue you would have seen heavy call

right when you were a kid what what

would you use that fevicolor you know

the white color gum you would use it to

what to stick two things or you would

have seen it in that art and craft right

but there you were using for art and

crafts but here the adhesive or the glue

that you're using it is specifically for

wood right you would have seen right

when a carpenter comes and let's say if

something in your house is broken maybe

a leg is broken or something you would

have seen right those people would use

this white color egg liquid so that is

what it is it is nothing but uh these

people nothing they they manufacture

nothing but glue or adhesive as you call

it specifically that is used in wood or

that is used in wood now of course when

you go out you're not going to see this

this name called Jyoti resins and

adhesives right if you go to any if you

ask a carpenter you know like oh do you

use Jyoti resin and Addison he might not

know it so what they have is Jyoti

residence is a company but their brand

name or they sell it they sell the

adhesive under the brand name called

Euro Euro 7000 then you see here on

under all the bucket in all the bucket

it is written Euro Euro Euro so they

have this brand called Euro they sell it

under this brand right so that's that

can you see here they were very

Diversified product portfolio so there

were a lot of things going on when I

talk about glue when you talk about blue

for or the adjective that goes into goes

input can you see your anti-termite

application uh termite is basically an

insect or a worm so what happens is this

termite feed or they ate the wood or you

know the dead plant right as a result

what happens as they eat this wood uh

the uh the strength of the wood becomes

less and of course if that if that

material is used in any structural

corporate let's say if you're building a

wooden staircase and this termite ends

up being there and they start eating

this wood right over over a period of

time what will happen the stairs because

the the structural Integrity of your

what is that structural Integrity of the

stairs will get loosened and of course

right it will it will cause structural

damage it will break

so anti-termite is is a kind of a wood a

wooden glue or a wood adhesive that

prevents the formation of of this

insects like termite like I'm not going

to go into detail now like you

understand it there are many many

Diversified product portfolio and not

only that you know the product like the

the way they sell in terms of quantity

also it goes from 500 grams to 70 kgs

you know that kind of big big buckets

also they do sell so that's about the

product right now once you're clear

about the product let us try and

understand what is the USP or as you

would call it the mode or the

Competitive Edge that this company has

right over the others because when I

talk about Globe when I talk about

additive I think the first thing that

goes into your head is like oh pretty

light and light is such a great company

it has been here for for the last 65

years right so you know what is their

mode how are they able to crack this and

you know gain market share when this

giant like Pedialyte has been there for

so many years so Jyoti residency if they

run a program called the Loyalty program

or an award or a reward program for for

this Carpenters right because anyways

this vodka glue that is there the End

customer is nobody but Carpenter you and

I will not take a bucket of uh you know

Euro 7000 and just keep it in the house

right the Carpenters use it because of

course they deal with a lot of this wood

wooden thing right so what happens here

is let's say if I'm a carpenter and if I

go to buy a product of Jyoti resistance

sorry Euro 7000 if I go to buy that

product what happens let's say I spend

100 rupees of money there right then

what happens maybe a certain percentage

for every purchase what I do what I get

is I get the points that will be

credited to my account over a period of

times you know when this point is

sufficient it will get Auto debited in

the sense like let's say I I go again

for the next time when I purchase and

and whoever is there you know from

wherever I go they'll see in my account

like oh you have so and so points you

can redeem it so maybe the product will

cost 100 rupees but over the over the

years have accumulated so many points as

a result I might have to pay just 60

rupees or 80 rupees you get that right

you're understanding how a reward system

works or a pawn system works I think

most of us have this experience with

like Flipkart or Amazon right we

purchase something I think Flipkart is a

good example we purchase something and

we get Flipkart coins right and then you

know once you know when uh when a

certain amount is there you can you can

redeem that point and you get a you get

to offer in your in your final bit so

the similar kind of thing even they run

with a carpenter uh with the Carpenters

and this has proven to be very loyal uh

this has proven to be you know uh made

the carpet is very loyal to them because

of course right let's say you you are

buying something from Flipkart and you

have accumulated points that you know

now that it's it's a pure psychology

players on one end because you know now

you are you will have to spend 100

rupees Less on this platform compared to

another platform because again and

because of that you tend to go and Shop

only from that platform it's a similar

type of story here going on right so

that is one thing so that is one of the

main USPS or Competitive Edge that they

really take pride on uh then can you see

her of course right now they are in 13

states they have 10 000 active dealers

and 50 Distributors and you know they

have a network of three La Carpenters

now one thing I would like to highlight

is here the volume growth becomes very

crucial right because when you talk

about adhesive Central you can't keep

increasing the price because if you

increase the price there will be

somebody who might not be willing to

increase the price some of the other

competitors and then what there might be

a problem of course right there might be

a shift of your customer so here when

you talk about growth in terms of volume

and value here it primarily comes to

like volume plates right and you can see

here the majority of the revenues coming

from five states that is Gujarat I've

put the percentage of Revenue Gujarat

around 30 to 35 Rajasthan and and other

uh other places like Karnataka and

Maharashtra and madhya Pradesh right so

if we have understood the business mode

we've understood the business model let

us try and understand the Outlook right

what is this what is this company

projecting so the company plans around a

25 volume growth in the coming years

like from F5 fi23 is a base if you take

for the coming three years it is until

fy26 they are they are they have given a

guidance of 25 volume growth while

maintaining a margin around 20 to 20 or

22 to 25 right and of course they're

targeting a CHR of 25 growth now how

will this growth come from let us see

right so first thing is like you know

this company was started long bank but

in the year 2006 they started this brand

code Euro 7000 and they started selling

this white blue okay so of course let

you understand this white glue is your

final product right glue is nothing but

your ad is so this final product to make

it of course you need a lot of raw

materials all these raw materials are

imported from different different

countries and finally they manufacture

the the final product that is a white

blue in their plant called santech in

Ahmed Gujarat that's why can you see

here the majority of the sale comes from

Gujarat around 40 to 35 that's one thing

now we understand why because they

started there and their plant is also

there so when they started they started

with 250 tons per month in earlier

um uh when they started I think in 2006

they started with this and they started

entering the Gujarat Market later what

happened in the year 2016 and 17 they

increased their capacity in that plant

uh to so that the plant can produce 500

tons per month and they moved into they

went they started the distribution to

another state that was called

Maharashtra in 2018 and 2019 what had

happened that increased the capacity to

thousand tons per month and they moved

into 12 States among that among the 12

states where the Karnataka madhya

Pradesh and which was the other one

Karnataka madhya Pradesh at uh Rajasthan

right that those were the states now

what has happened in 2022 they have

again expanded the capacity from uh 1000

tons per month to 2000 tons per month

right it's basically 2X and of course

you're pouring into many other states

um and and that's a process right

further right now even after this whole

2022 after the whole 2000 tons per month

they're increasing it further to 2400

tons per month and here's the thing

they're increasing it to 2400 tons per

month and they're building a warehouse

here so this is the whole plan now in

spite of building the capacity and

increasing the capacity to 2400 tons per

month what has happened is their current

plan that is there at this now it is

still running at hardly fifty to sixty

percent capacity utilization that's it

it is not running more than that so what

they're planning to do is once it goes

up to this 80 percent capacity

utilization once this plan goes then

they will go invest in the uh in buying

another plant maybe maybe uh doing a

Greenfield project and they're planning

to do this after 1.5 years if again once

the the current client reaches the 80

utilization they are planning to open

another plant in in probably in the

south of India somewhere in Bangalore so

that's the whole plan the uh how are

they able to penetrate into 25 sorry how

are they able to like go into the whole

25 car growth rate or 25 percent because

for the next three years and having a 25

volume growth on a uh year on year plus

while maintaining this this is the plan

like I told you they've increased the

capacity already and of course uh

they've increased the capacity and the

second thing is like I told you here

when you talk about IDs if it is more of

a volume growth after volume growth the

more you do distribution the more

increase active dealers the more you do

this that's how you get your that's how

we get the uh volume growth right the

best example again to this would be what

Varun beverages did how did they get the

volume growth of course there was a

product mix because of staying the game

changed but also as a you know they they

started pouring into new markets same

thing is happening with Vector also

right you can see Vector is giving a 40

car 40 percent growth how did Vector do

this Vector also increase their

distribution you would have seen that

right because of this the volume growth

comes the more you increase your

distribution the more you have more

active dealers you have or the number of

stores one another prime example with

volume growth is Metro how was Metro

able to do 25 in growth of course

premium the other one is you would have

seen there when uh Nissan Joseph came um

Nissan Joseph started it interacting

right I think in q1 of last year he had

given a guidance of 260 stores in the

next three years right and that's how

the volume growth came the 25 percent

per cage out there anyways we are type

racing but to understand the basic point

that volume growth comes from

distribution right and you can see that

their distribution how are they doing

already they are in this 12 States right

and I showed you the five majority in

five major states where the revenue is

the majority of the revenue is coming

from right now what they're planning to

do is they're trying to venture into two

more States and these two more States

can be either uttar Pradesh or Delhi in

the North or it can be Chennai and

Kerala in the South so of course right

uh one is they're entering into two new

States and they still feel that the

current states are there in like Gujarat

Maharashtra uh MP right and Karnataka

they still feel that they have not

penetrated deep enough you know not to

the time to entitle and they feel that

you know there are much more uh

penetration to be done there so that's

that's how they plan to grow

yeah uh and now let's just see the

oh yeah another thing I would like to

highlight is that uh I keep stressing

about volume growth right and they have

had a robust volume growth for Q4 uh for

the entire year of fi 23 and that is

27.5 and this quarter if you see they've

had a volume growth of eight percent uh

like if you see from Q3 to Q4 in spite

of seasonality why I tell seasonality is

because uh you would you would know

right any kind of consumption business

especially paints businesses is kind of

related to pains business also if you

see this all of these people have the

highest revenue or the highest revenue

in a year coming from Q3 because Q3 May

uh Festival so that people tend to paint

the houses and repair things now before

Diwali I think this culture is very

prevalent in the north of India because

of that what happens the majority of

sales comes from Q3 and Q4 becomes a bit

a bit dull as comparison to Q3 because

of that seasonality factor but in spite

of that can you see her even on a

quadrant quarter they've done a eight

percent volume growth which is really

fantastic right so

now let's just see the financial

statements so the first thing first is

can you see her that the revenue has

increased right Revenue has increased on

a quarter on uh sorry Revenue has

increased 13 year on year but look what

on quarter basis it has been flat right

now I'll explain the reason why it is

flat uh before that can you see other

income has not increased not a major but

uh Pat also uh on a year on year you can

see that increase has been 137 uh I

think it has been it has increased by

137 and um where is it yeah it has been

increased uh 137 and if you see the

other thing is the um employee benefit

expenses even that has increased earlier

on your basis which is good right you

would see here The Pact again of course

um

one second yeah

yeah the reason here for the revenue can

you see her being flat on a on a quarter

on quarter basis although we've told

that the volume growth of eight percent

has been that quarter quarter but why is

it not projected in in terms of Revenue

why is that so

um remember I spoke about this reward

program uh their their Mort is this

reward program or right so what happens

is in this reward program is let me try

and explain this in a simple matter

right so let's say now I'm a I'm a

carpenter right and I go and I get a

hundred rupees worth of product right so

of course he has to he will get certain

points credited in his account right

like because he purchase let's assume

the amount of points that is credited in

his account is 10 Rupees so what happens

is this 90 rupees will go as will go

although he has given the complete

hundred Rupees to the company 90 rupees

will get registered as revenue and the

other 10 Rupees will get registered as

expenses now why this 10 gets registered

as expenses is because you know right

tomorrow you will come and they will

redeem the points right because which

means what you have to pay once he

redeems a point actually this will go to

their revenue back to the revenue so you

understand that because of this the

expense part of it or the financial

liability part of this will increase I I

don't if I'm making sense like if I've

explained it properly but yeah I I don't

know but the I just tried to explain

again I don't think I am I'm satisfied

with the explanation but here's the

thing right if I'm the Carpenter and I'm

buying a product of 100 100 bucks right

and let's say I give I I do give hundred

bucks to the company but what happens

well it is getting calculated in in uh

calculated by the company they take it

as this person has paid 90 rupees that

goes into the revenue and the 10 and the

10 Rupees will go as expenses why

because this person will come and redeem

that 10 Rupees again right after he

redeems at 10 Rupees as a point once

this point then only this will get uh go

into the revenue pack so I hope this is

clarified right now how is this

affecting here is in like I told you

remember there is a seasonality aspect

between Q3 and Q4 like I told you one is

Festival season the second thing what

happens is all these Carpenters that you

see they have migrated from different

different places during this season that

is in the January February region

January February and March season what

happens is they tend to go back to their

Villages and what happens if they're

going back to the Villages of course

they're not working right so they don't

they don't redeem the points if they're

not getting if they're not ready

Redeeming the points it it becomes still

as a part of expenses now it doesn't go

to the revenue that is why the revenue

has not increased although there has

been a volume growth of eight percent

water and water and I hope this is

understood now now the how much has been

the amount that has not been redeemed it

has been five crores so if I added five

crores here right 66.8 if I add five

crores here that redeemed points that

their points that are supposed to be

redeemed you would see that the quarter

on quarter Revenue also there will be an

increase can uh the cotton quarter also

will increase I think it will be then

how much 10K 1.8 crores so yeah so on

that basis if you see you will see that

quarter and water Revenue has increased

your own your author's Revenue has

increased other income employee benefit

has increased good thing and of course

net profit of the period if you see

right 137 percent yeah say six it's in

lacks no yeah so 6.92 lakhs to

um sorry 6.92 crores to 16 or 16.4

cruise and of course if you're not

Quantum quarter basis you will see it

has increased from 12 to uh 16 crores

the next thing we will see here is the

uh yeah the the asset liability

mismatched if you see the current asset

right 135 gross and current liability is

103 crores it is greater it's greater

than one uh so that is there uh if you

see the reserve also has increased can

you see the total Equity has increased

right Roe is also has increased because

of course

analysis Dupont analysis

turnover into asset turnover is nothing

but volume then of course your profit

margin which is your value growth and of

course your last is your uh leverage

your financial leverage asset turnover

because this time this this year they

have had an asset turnover of 8 times 8X

right so of course you would see the RO

increasing because of that the next

thing comes is profit margin yeah profit

margin you would have seen that the raw

material price of all this you know to

make all this uh adhesive they use a lot

of bam and other products now uh I think

polyvinyl polyaceted something that's

that's a chemical that they use So what

had happened again the same situation

just like the paint company because of

the coveted Supply demand issue the

price had gone up to 1.5 x and to and to

take care of the to protect your margin

what will these people do they will

increase the price and pass it on to the

uh on to the consumers so because of and

now the raw material prices come down so

because of that there is a margin

expansion that has that has happened

right

and the other one is financial leverage

I don't think this company has a lot of

financial leverage because

a lot of the times you know when you see

a company they'll have this 25 per group

rate they tell but what happens is the

Roa is hardly 15 16 so that that growth

you know it's very difficult to get that

growth it's not impossible but in order

to go to achieve that growth you know

the companies might have to take debt or

dilute equities here then that won't be

the problem because your Roe is around

um 55 right Ro is around I think 55

around that percentage so if you're

targeting a 25 growth 55 percent it is

not a I mean it's good right and also

one of the reasons the RO is so high is

because this company has so much cash

you know like they're so cash which

company

um I don't know why they have so much

cash but yeah again they've been very

slow with your progress also right if

you see if the light has expanded over

the last 65 years and if you see the way

these people have expanded right a key

planted like until now since the time of

inception till now if you see um like we

2006 May jump Euro 7000

in that uh Gujarat and you would have

seen right they've just kept increasing

the capacity then Brownfield Square

that's all they have done they haven't

opened another new plan so you can

understand they've been I think very

conservative with the whole uh with the

whole growth approach now let's see here

um

The Profit before tax has has increased

right it has come from 26 to 61 almost

2x okay compared to last year to this

year right that's one thing after adding

all your depreciation changes uh and

other things the working uh the cash

flows before your working capital also

has increased from 24 to 61 crores now

here can you see here the net cash flow

has decreased right now there's an

interesting thing that has happened here

is if I read in the Concord that the

accounting practices have changed that

in day is accounting practices and that

has changed so what because of that what

has happened is there are two two kinds

of uh when you do a fixed deposited

there are two things one is that fixed

deposits where the maturity is after 12

months and the other thing is a fixed

deposit where the maturity is between

three to 12 months right it can mature

anywhere between 3 to 12 months so those

fixed deposits those FD that you do

where the amount will get matured

between 3 to 12 months that should be

that should be considered that's cash

and cash equivalence right uh and and

not just not Current financial assets so

what has happened is because you have

had a lot of money there as a result

because of that the net cash flow uh

from operations it seems less the the

final let cash flow used in operating

activities it seems less but if if I

don't consider that whole in day eska

practice and like if I go back to the

normal accounting practices you would

see that the cash flow has increased in

fact it is 37.7 crore compared to so if

I'd say yeah uh yeah 37.7 crore so it

has increased at 2 to 37.7 so it's a big

increase you would see that the only red

flag I have is the trade receivable has

increased a lot right

uh last time uh last year same time

company 12.24 crore which means what you

are you are selling your product uh your

or your mall to the to the uh to your

dealer or your retailer whoever it is

and that person hasn't been you know

like after selling the product that cash

can question that is there that has to

come to you it it didn't come and here

the delay the time that is there you

know it has uh it has increased uh

although if I have to check the debtor

days has improved I think from 122 to

107 days I'm not sure exactly the number

but again this this is the only red flag

that I have inventory Sky increase is

not a big deal because that guy told you

they're setting up a new plan uh new

building for you know new plan for the

storage of raw materials so increase in

inventory makes sense because of that

other than that if you see there is

nothing as so in this in this uh

what is that in this company as to like

you know uh in in the in the whole cash

flow that is the only one thing uh after

that uh right there is other than that

you will see purchase or sale of fixed

assets nothing uh none of not a big item

the only thing is I could say dividend

because earlier the company was not

giving dividend I think I think over a

year back or something at that time this

was even a smaller company they weren't

doing concall I think uh and the company

and I think all we had was an annual

report as much as I remember this was

very long back and all they had was an

annual report they were a small company

they were really growing well but having

said that the only part of council was

these people were having so much cash

and they weren't giving dividend but you

would see that the salaries of you know

the top management would keep increasing

so that was kind of a thing but having

said that now we would see that they're

giving dividend also right so that's not

about your cash flow I have explained

everything you know the entire balance

sheet so the other thing is the last

thing is after the Q4 fi23 so yeah

that's the management commentary like I

told you how will the volume growth come

from you know volume growth from all the

distribution and the capex that they're

doing that's one thing uh and you know

how are we can significantly prove from

that so here what is the red flags and

the risks that I see here is one is the

promotional scheme that you're talking

about right

I I wonder I understand that you know

the Carpenters are very loyal to them

and everything but I wonder if this can

be like I know they have been running

this royalty and reward program for a

long time you know since I think 2015 or

2016. but here's the thing like I think

anybody can come and replicate this

right like even Pedialyte today has a

huge network has a huge uh active active

dealers compared to these people and

they can come and replicate this anytime

and this is another company called

nickel additives even they can do that

so I don't necessarily see this as a

mode right because anybody can come and

take this away from you and what if they

end up giving even more discounts so

that is one thing the other thing is of

course your raw material price you know

if that increases again your whole

product can come into since you know it

is very difficult here to take a price

High because if you take a price hike

here what happens is there can be where

people start to downgrade your product

so I see these two risks and the other

one thing I would like to highlight is

because these people are very small

company right I think the market cap is

hardly 15 1500 crores that's it so very

small company and even right now can you

see they're only into 12 States right

hardly into 12 States or 12 States no

only in five states are like heavily

penetrated other than that you know they

have still a lot more work to do they're

only in only in like metros and Taiwan

cities and all so here is a thing like I

I think the company can like still more

you know like penetrate into another

other states rather than just two states

uh uh the other thing is like since they

have a lot of cash right it's their cash

and cash equivalence if you see you know

they have they have a lot of cash and

their Roe is at 55 percentage you know

like so it just shows you that they can

set up another plant and you know like I

think be aggressive with the growth uh

you know just uh two states they're just

penetrating into two states you know

they can do another capex and I don't

know they can be be aggressive and

someone had spoken about this in Concord

also but uh the management was like you

know they are being aggressive because

they're going to penetrate even deeper

in the existing states that they are

there and of course they will go to two

more States because when you see the way

Pedialyte has worked over the years you

know they were quite aggressive when

they when they started their whole

distribution and the active dealers that

they're doing so that is one thing the

last thing I would like to highlight is

a management uh management management

background uh this is this is somewhat a

red flag for me because I think on two

instances in the Year 1997 and 1998 and

somewhere in 2003 and 2004 the

management the sebi had filed a case on

them telling that you know they were

involved in rigging of uh uh instruct

manipulation so I don't know as per as

to like

um I mean I don't want to go into detail

of that of course but you are I mean see

there has been instances where Market

doesn't forgive and there has been

instances where if growth is there

Market doesn't care about anything else

else also I think a classic example is

force Motors every time you know when we

come out of a deep autism Circle and and

the sales number are good or Force

Motors you would have seen it has done

probably Forex like uh so that's the

thing I just wanted to highlight this

this is like one red flag that I found

out regarding the company management you

know the background other than that it's

good to it's good to go you would see

that

um the company is great and I I don't

like if they are entering into two

states increasing the active dealership

I don't see why they can't do a 25

volume growth right it seems a bit easy

for them to do having said that yes it

would be back it would be a bit nice you

know like probably if they can increase

the uh increasing capacity uh and again

penetrate into more States like I think

I think that that's the only thing I

have to tell other than that a great

company absolutely great

um

absolutely great company that I don't

see any flaw other than this so

yeah uh all we can do is track and see

if you know if the companies delivers

the 25 volume growth that they've told

and and hopefully that 25 volume growth

gets converted into the top line also uh

because and and I and this whole reward

program think like what happened in this

quarter I hope it doesn't happen again

in the next quarter next quarter or the

coming quarters and of course let's

track and see you know if this company

does what it say it will do 25 volume

growth while maintaining and a bitter

margin of 22 to 25 yeah so having said

that thank you

thank you and uh yeah I'll see you again

uh next time have a nice day

thank you